Reserve fund
Also called: Replacement reserves; capital reserves
A reserve fund is money an association sets aside, separate from day-to-day operating cash, to repair or replace major shared components when they wear out: roofs, paving, siding, pool equipment, elevators, fencing. Each year the budget moves a planned contribution into reserves so the money is there when the component reaches the end of its life.
Reserve health is often expressed as percent funded — the reserve balance divided by the amount the components have already "used up". A low percentage does not mean a crisis today, but it does mean a future replacement will probably be paid for by a special assessment, a loan, or a sharp dues increase.
Many boards keep reserves in a separate bank account, and some states require reserve disclosures in the annual budget. A reserve study is how the contribution is set.
Read more
- How to build an HOA budget that survives the year
- How healthy is your HOA? A 20-question diagnostic
- Free HOA reserve fund calculator