What Is a Capital Reserve Study?
A capital reserve study is an in-depth evaluation of an HOA's common property and physical components. An analysis of the existing reserve funds is conducted, and recommendations are made to provide for continued maintenance and replacement of components within the community.
After a thorough on-site inspection, a reserve study details anticipated replacements or repairs to common-area elements and recommends annual reserve funding to cover capital expenditures for the next 30 years.
Reserve studies provide property managers, board members, and owners the information they need to plan for future major property expenses. These are identified so that a recommended funding plan can be implemented to pay for those expenses.
Is a Capital Reserve Study required in Utah?
Many states have laws that require HOA's perform reserve studies. Utah Legislative bill SB278, passed March 2010, amended the Condominium Ownership Act (Utah Code 57-8-7.5) and the Community Association Act (Utah Code 57-8a-211) to require the following within the state of Utah:
- Conduct a reserve analysis every five years:
- (2) (a) (i) ... cause a reserve analysis to be conducted no less frequently than every five years ..
- Conduct a reserve analysis before July 1, 2012:
- (2) (a) (ii) .. .if no reserve analysis has been conducted since March 1,2008, cause a reserve analysis to be conducted before July 1,2012...
- Update a reserve analysis every two years:
- (2) (b) ...update a previously conducted reserve analysis no less frequently than every two years.
What are the major components in a capital reserve study?
Experience has shown that most communities will spend a major portion of reserve funds on three major items: Roofing, Exterior maintenance, and road/parking lot maintenance. As such, it is critical that these components be carefully measured using construction plans or on-site measurements. Accurate cost estimates in current dollars allows a more precise estimate of future costs tied to these components. YKL Consulting is evaluating and adjusting these costs on a regular basis to follow local market trends and material costs, providing you the most accurate evaluation possible.
What items would not be included in the property assessment and inventory of components?
A reserve study does not include any common elements that require maintenance on a basis of two years or less, or require less than $1000 in costs. These types of items, such as parking lot repainting or rain gutter cleanout, should be considered as part of the annual operating budget.