Most Associations have two types of bank accounts: Operating and Reserves.
You can think of these like your Checking and Savings Account.
The Operating is for paying your day to day bills like - water and electric, landscaper, stamps, and small maintenance items.
The Reserves are like your Savings Account, saving up money for the big ticket expenses. But there is one caveat - while you can use your Savings Account to save for the new swimming pool you want to install, or getting a tool shed, or expanding your driveway - the Reserves are not for buying or building NEW things.
The Reserves are only for maintaining/replacing the items that already exist, not installing new items that weren't there before. These maintenance and replacement items would be - re-plastering the pool, re-roofing the pool cabana or clubhouse, replacing the pool or playground equipment, repaving private roads or the clubhouse parking lot, and replacing the monument signs. For communities with Townhomes or Condos, the Reserves are also where money is saved to make big exterior replacements to the buildings, like re-roofing or painting the exteriors of the buildings.
What is a Reserve Study?
To help ensure we know what items will need to be replaced, and when, and a relative estimation of the cost of that item, we hire an engineering firm that reviews all the items of the community the HOA is responsible to maintain and replace. They provide a report (or "Reserve Study") that provides all the information, and also details how much money the HOA needs to put into the Reserves each year to ensure we have the money to replace these items when the time comes.
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