5 Condominium Reserve Fund Study Tips

A key component of any successful condominium corporation is proper funding.

Condominium board members must ensure their communities have adequate money in a reserve fund to cover major repairs and replacements, which ultimately protects homeowners and property values. To do this, condominiums must conduct a reserve fund study to maintain the financial health of the community. Read on to find valuable condominium reserve fund study tips and learn why reserve fund studies are so important.

What Is a Reserve Fund Study?

A reserve fund study for a condominium corporation is an in-depth analysis of the condominium’s property, financials, and foreseeable costs. These studies are designed to identify upcoming  repairs and replacements based on the status of a community. The study’s results will determine how much money a condominium must collect from homeowners to cover these expenses and keep funding on track. The monies collected go into a reserve fund. A reserve fund is cash saved by a condominium corporation for repairs to components the condominium is obligated to maintain and future replacements and repairs that don’t occur on an annual basis.

For example, a condominium may be required to replace playground equipment at least every 10 years. A reserve fund study will factor in that expense and calculate what needs to be saved in the reserve fund to pay for those replacements in the future.

5 Condominium Reserve Study Tips

Do your due diligence to get the most bang for your buck and conduct a reserve fund study that benefits your community. Here are five condominium reserve fund study tips to follow.

1. Hire a qualified reserve analyst.

To get an accurate, unbiased, and dependable reserve fund study for your community, hire a qualified reserve analyst. Reserve studies involve crucial details, visual assessments, estimates, planning, and more. An experienced reserve study professional will have the skills, credentials, and resources to complete these steps thoroughly and effectively.

Refer to The Condominium Act, 1998, as there are restrictions on who can perform your condominium reserve fund study.

2. Understand what reserve fund study is best for your community.

The Condominium Act, 1998, specifies the type and timing of reserve fund studies

Theytypes are:

• LEVEL 1 – COMPREHENSIVE RESERVE FUND STUDY. A comprehensive reserve fund study is the most detailed type, involving several on-site evaluation steps: component inventory, condition assessment, life and valuation estimates, fund status, and funding plan.  This is the first study required for all condominium corporations.
• LEVEL II – RESERVE FUND STUDY UPDATE WITH AN ON-SITE REVIEW. A Level II evaluation is meant to be an update to a comprehensive reserve study. While it also involves the five main steps of a full study, it doesn’t go as deep with the component inventory. The analyst will review the existing inventory and add new components that weren’t previously recorded.  This is required three years after the comprehensive study
• LEVEL III – RESERVE FUND STUDY UPDATE WITHOUT A -SITE REVIEW. Three years after the Level II on-site study, a Level III update is required. You’ll need to provide information about your community to the analyst, who then completes life and valuation estimates, fund status, and a funding plan.

3. Review and approve the reserve fund study.

Work with your community manager to review the reserve fund study and approve the results. An experienced professional can help you comb through the fine details, recognize problematic areas, and present solutions to board members.

Remember to be transparent with homeowners about the study’s outcomes and how it can affect future financial planning. If residents understand the reserve fund study and its importance, they’re more likely to comply with changes to keep the community funded and well-maintained.

4. Create a plan for funding reserves.

Use the study’s results to adjust homeowner contributions accordingly and keep your reserve account appropriately funded. In some cases, you’ll need to reconsider assessments and fee amounts to reach your goals to cover expenses.

Implementing your funding plan now will reduce special assessments or loans in the future. This protects homeowners from sudden fee increases and prevents frustration with how the board handles condominium funds.

5. Conduct reserve fund studies regularly.

There are regulations on how often you must conduct a reserve fund study. Ontario requires reserve studies to be updated every three years alternating between a site inspection (Level II) and no site inspection (Level III).

Conducting regular reserve fund studies demonstrates good financial stewardship to residents and helps the board make informed decisions for the community.