“Why should we reserve for expenses that are 30 years away?”
HOA Reserve Studies are extremely important. How can a Board responsibly choose to not care for an association asset? All physical assets are gradually deteriorating every day. As the physical value of that asset moves from “new” to “old”, there needs to be an offsetting growth in the Reserve Fund in order for the Board to claim they are responsibly caring for the assets of the corporation. In addition, if the Board ignored a Reserve Study that indicated the funding needs of the association and the Board chose to not reserve for one or more components, there could be some real liability exposure.
In the coming years roofs will need to be replaced, the asphalt will need to be overlaid, and the siding will start to deteriorate and will need to be replaced. In most associations, these combined projects could cost well over a million dollars to replace. This doesn’t count mechanical equipment, pools, concrete work, etc. If the proper amount of money has not been set-aside in the past, it is likely the association will need to Special Assess, defer the project, or obtain a loan from a bank. If the association goes to a bank for a loan, the bank is going to want HOA Reserve Studies in place to make sure the association has a plan in place to avoid this problem in the future. If the project is deferred, the appearance of the property may be affected and the property values will decrease.
The Board’s primary responsibility is to protect, maintain, and enhance the assets of the corporation. That is done when the deterioration of physical assets are offset by the growth of financial assets. Physical deterioration cannot be ignored. Two wrongs don’t make a right.