Serving on an HOA Board comes with many duties, but one of the most important is ensuring the community’s financial health. In order to do that, a major concern for boards should be the community Reserve Fund.
Reserve funds are essential for long-term financial stability, no matter if your community is an HOA or a Condo. These funds cover predictable repairs, replacements, and emergency expenses. Think about that, particularly during natural emergency events, such as a hurricane or a wildfire. While you can’t predict the exact moment they’ll strike, there’s always a season for them, which makes planning ahead not just smart, but necessary. If you wanna learn more about reserve funding, check out this informative Webinar presented by an industry expert, Sundeep Jay, Senior Reserve Specialist (RS) and Professional Reserve Analyst (PRA) at JR Frazer, Inc.
Besides that, a reserve fund helps avoid disruptive last-minute special assessments that can frustrate residents. That’s why it is important to note, however, that it is the responsibility of board members and community managers to safeguard these reserves.
To help you with that, this article will explore what reserve funds are, highlight their importance, and provide guidance on where to start.
What You Will Find in This Article
What Is A Reserve Fund?
A Reserve Fund is a dedicated savings account meant for major, planned expenses. Think about roof replacements, repaving, elevator overhauls, or even natural disasters, situations that don’t happen every day. On the other hand, we have operating funds that cover utilities, landscaping, and administrative costs; reserve funds serve as your safety net for long-term infrastructure needs.
Having a Reserve Fund is so important that in some states, such as Illinois, condo associations are legally required to budget for these reserves under section 765 ILCS 605/9, which mandates “reasonable reserves for capital expenditures and deferred maintenance”. But even if your state doesn’t legally require it, having a reserve fund is often common sense, and in many cases, it’s required by your community’s own governing documents. Beyond compliance, it’s a smart way to protect your property and avoid financial surprises down the road.
Even though, having a reserve fund goes far beyond simply saving money for the future.
But it goes far beyond simply setting money aside. Creating a healthy reserve fund starts with a reserve study—a professional assessment that looks at the condition of the community’s key assets and amenities. It helps determine their remaining useful life, when repairs or replacements are likely needed, and how much those future expenses may cost. This process gives the board a solid roadmap to plan contributions realistically and avoid financial shortfalls.
What is the difference between Operating Funds and Reserve Funds?
Both are critical; however, confusing them can expose the association to risk. An operating fund is exclusively dedicated to day-to-day operations and ongoing costs, while a reserve fund covers larger expenses and less frequent repairs. The operating account is used more frequently for tasks as paying salaries, routine maintenance, utilities, insurance, and others. Alternatively, the reserve deals with exceptional occasions, such as roof replacements, pool repairs, and repaving parking lots, among others.
So, be careful, operating from reserves or vice versa, distorts budgeting and may violate state requirements or lender scrutiny.
Why Reserve Funds Matter For Your HOA?
The main issue with Reserve Funds is that many communities don’t have enough money to set them up. However, there are plenty of reasons why you should make a strong effort to start creating yours.
- Financial Stability
A well-funded reserve helps avoid unpredictable, burdensome special assessments that can significantly impact homeowners’ budgets (increasing resident dissatisfaction). - Preserves Property Value
Maintaining a routine capital for maintenance keeps the community attractive and safe, benefiting both residents and resale values. Imagine a beautiful community with well-maintained common areas, which would not only attract potential buyers but also keep residents happy.
- Preparedness for Emergencies
With sufficient funds, the HOA can respond when it matters the most. A reserve account is part of being well-prepared; in a critical moment, like a hurricane storm or wildfire, the community would (simply) have money to deal with the damages without scrambling for cash. - Increasing Trust
We trust those who care about us; that’s a fact. When a board shows genuine concern for the community’s future and is prepared to handle challenges, whether it’s aging infrastructure or unexpected maintenance needs, it builds credibility. That kind of foresight and responsibility reassures residents, strengthens trust in leadership, and improves the overall living experience.
The ideal scenario
Imagine a coastal community pummeled by storm surge. The board springs into action, funds are immediately available to rebuild their seawall, clear debris, and restore essential services. Because they communicated their reserve plan in advance, through newsletters, portal posts, and SMS alerts via Neigbrs, residents understood why funds were allocated that way, and the recovery was smooth and unified. No lawsuits, no finger‑pointing—just collective relief.
Neigbrs by Vinteum can be that communication engine. With five integrated channels, boards can send reserve‑fund updates, funding plans, and financial reports—all from one dashboard. Its QuickBooks integration ensures every contribution and expense flows into an audited ledger. Plus, secure document storage keeps reserve studies, budget spreadsheets, and compliance certificates accessible whenever needed.
What Reserve Funds Are Used For?
As we already mentioned, a reserve fund must cover the planned costs, which are less frequent but usually more expensive. Common uses include:
- Roofing projects
- Pavement and seal coating
- Elevator modernization
- HVAC and boiler system replacement
- Pool refacing and deck resurfacing
- Structural repairs like balconies or drainage
- Seasonal natural disasters that affect infrastructure
How Much Should an HOA Keep in Reserve Funds?
There is no standard for how much an HOA or Condo should keep in its reserves; however, it is essential to check the state-specific laws.
A good practice is following the Rule of Thumb: 70%–100% of “fully funded” levels is considered robust. Anything below 70% is underfunded; at or above 100% is ideal. If that sounds a little far for your community, even 50% funding is acceptable to avoid shortfalls.
To build that, specialists at Reserve Study advise that contributions typically comprise 15%–40% of annual dues. That means that at least 15-40% of your HOA or Condo fee should be allocated to the reserve budget. Back to the Illinois example, without a waiver, in the state these budgets must maintain “reasonable reserves” based on independent study, accounting for component lifespan, expense projections, and community burden
Where to Begin
If you’re unsure where to begin setting aside a reserve budget for your community, don’t worry; here are the first steps.
Conduct a Reserve Study
Your reserves must start by knowing how much your community should have in its reserves. That’s why it’s crucial to conduct a reserve study to address your community’s specific needs. Usually performed by an expert professional, this study provides a financial analysis, forecasting major repairs, projects, replacements, and anticipating general expenses. With that in hand, boards will have a strategic roadmap.
The key is to conduct a reserve study every 3–5 years; in this sense, your community will know that, for example, the association’s elevator system is estimated to need replacement every 12 years, with a predicted cost of $30,000.
- Fund Consistently
Your reserve study will probably estimate how much you should set aside from monthly assessments for the reserve account. However, it’s still important to remember that you should commit to annual funding. A good guideline is to aim for 15% to 40% of operating revenues. Consistency outweighs volatility and helps build trust. - Ensure Compliance
As mentioned, some states may have specific rules regarding condominium reserves; for instance, Illinois requires condominiums to follow certain guidelines. Hence, review your state laws and, if needed, consult an attorney for more instructions and information. If you’re a new board member, also check your community’s governing documents to ensure you’re following their requirements. - Prevent Misuse
Your community reserve fund must have a separate account with restricted access to defined purposes and track expenditures diligently. This will keep everything crystal clear and prevent the borrowing of reserves to cover operating shortfalls.
Final Thoughts
Nobody likes surprises when it comes to community expenses. That’s why having a well-managed reserve fund and communicating plans clearly via a platform like Neigbrs makes such a difference. It gives the board the ability to handle big-ticket repairs without scrambling or putting extra pressure on homeowners. When contributions are made regularly and plans are communicated clearly, it shows that the board is thinking ahead, and that builds trust. Every community is different, so it’s essential for board members to understand the specific requirements for their reserve fund and take the lead in maintaining its health
Ready to elevate your reserve‑fund strategy and transform trust into action?
Schedule a Free Demo on Neigbrs now and discover how seamless financial transparency can safeguard your community’s future.
