Many homeowners association (HOA) members — and even some Board members — don’t always realize the purpose of reserve funds. They often see it as money for a rainy day, or an emergency back up if the operating cash gets low. However, according to Associa Hawaii, a property management firm in Honolulu, there’s more to the option than just that; they discuss what it is and why it’s so invaluable.
The Difference Between Operating & Reserve Funds
Operating funds are used to pay for everyday expenditures from landscaping and plumbing to security. It also covers utilities, most office expenses, and accounting and legal fees. These are recurring expenses necessary to keep the association running. They may aid in weekly, monthly, or even annual services.
Reserve funds, on the other hand, are used to cover the cost of major projects. They strictly pay for expenses that don’t occur on a weekly, monthly, or annual basis. Many associations use reserve funds to pay for projects like roof replacement on community buildings, paint jobs, and serious construction endeavors like roadways and sidewalk repair or installation.
The Value & Importance of Reserve Funds
Those running for a seat on the Board often promise low HOA fees as their platform. Some suggest cutting the reserve funds in half to lower costs or increase the operating budget. Unfortunately, moves like these leave the association without the necessary money to handle major projects.
Many states, including Hawaii, have enacted laws surrounding HOA reserve funds. For instance, associations must budget for them in advance by conducting annual studies to appropriately allocate cash. Periodically, they must also employ more in-depth investigations to ensure proper funding for long-term periods.
As a property management firm with nearly 40 years of experience, Associa Hawaii has seen the consequences of poorly funded reserves. They offer a range of property management and real estate services that benefit HOAs and owners and prevent apartment complexes and condominiums from falling into disrepair. Visit their website to review what they have to offer, or call (808) 836-0911 to speak with one of their professionals today.