Reasons to Contribute to A Reserve Fund

Reasons to Contribute to A Reserve Fund

When it comes to adopting an operating budget, reserve contributions are far down on the list of items to include. A typical operating budget will include things like; utility bills, insurance premiums, landscaping maintenance, and management fees. Unfortunately, reserve contributions are viewed as something that can only be done if the association generates an end-of-year operating surplus. Most homeowners consider reserve expenses as far out in the future and do not plan on living in the community when these expenses occur, so there is no reason to pay for replacement of something you won’t be around for. Below are four reasons to contribute on a regular basis to a “Reserve Fund”.

  1. Reserve Contributions are required.
  2. Everybody should pay their share
  3. Protect your investment
  4. Sound business judgement

Reserve Contributions are required

It is a Boardmember’s fiduciary responsibility to maintain and preserve the assets of the association. Part of this fiduciary responsibility includes collecting an appropriate amount of reserve contributions. Currently, there are 30 states with some form of reserve funding legislation. Check your governing documents for specific requirements in your community, but chances are good that reserve contributions are not an option for your community.

Everybody should pay their share.

Reserve components such as roofing systems, paint surfaces, asphalt, and mechanical equipment deteriorate on a daily basis due to general wear and tear, oxidation, UV rays, and other weather related elements. Although deterioration occurs on these components daily, replacement may only occur every couple years and in the case of the roofing system, replacement occurs every 30 years. It is not fair for early homeowners to enjoy years of maintenance-free roofs without setting aside funds to cover the ongoing deterioration of that roof. Future owners should not get stuck with an expensive roof replacement because past owners neglected to set aside adequate reserves.

Protect your investment.

Reserve contributions help maintain the property’s value and the property owner’s investment. By budgeting for future capital improvements, the property’s common elements continue to look attractive and well-kept, adding to the community’s and your property’s value.

Sound business judgment.

It is much easier to set aside a small amount of money each month now, rather than face the possibility of large special assessments later. Proper reserve contributions generally amount to just a few dollars a day per unit. Thanks to compound interest, these contributions accumulate day after day, year after year, and eventually grow big enough to offset large repair and replacement costs in the future.

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