What is a Reserve Study? Reserve study financial analysis

As defined in Wikipedia ... A reserve study is a long-term capital budget planning tool which identifies the current status of the reserve fund and a stable and equitable funding plan to offset ongoing deterioration, resulting in sufficient funds when those anticipated major common area expenditures actually occur. 

Purpose of a Reserve Study

The purpose of a reserve study is to give those overseeing the maintenance of the property a better idea of what major expenses to expect and an educated estimate of when these expenses will occur. With this knowledge, the homeowners' association board or manager can create a budget so association members will make their fair share of reserve contributions, designed to offset the slow but steady ongoing reserve component deterioration of the association assets, and avoid being surprised by components that deteriorated often in plain sight and over a number of years.

A reserve study is a roadmap that allows decisions to be made which will be efficient and effective for the long term.  The International Capital Budgeting Institute (ICBI) has established standards for calculating percent funded.  There are three methods of making this calculation, and differences between reserve practitioners can, unfortunately, result in significant differences in the percent funded amount. The ICBI recommends that percent funded calculations should always be made using the inflation adjusted method.  Click here to view/download the ICBI's Reserve Study Standards.


There are three results from a reserve study:

  1. A listing of the major components of the association to be funded through reserves, their expected useful life, remaining useful life, and current replacement cost (yielding the "scope and schedule" of the reserve projects).
  2. An evaluation of the current strength of the reserve fund (commonly expressed as "percent funded").
  3. A recommended multi-year reserve funding plan.

Why you should have a reserve study.

There are six important reasons to conduct a reserve study.

Four Phases:  Plan ... Do ... Communicate ... Update

Phase 1:  Plan

Four phases of a reserve study

Develop the work plan, gather the participants performing the work, identify the work products and who is going to them and the operating budget.

Phase 2:  Do

Perform the physical analysis and the funding, or financial, analysis.  The physical assessment can often be the most time consuming, especially the first time through.  In subsequent reviews, the component list generally remains static and it is only necessary to perform an update.  Subject matter experts should be used when assessing physical asset costs and condition.

Without tools, conducting the conducting the financial analysis requires knowledge of capital planning ... or the use of a tool such as the Reserve Funding Analyzer to assist in this effort.

Physical Analysis
  • Identify components
  • Specify quantities
  • Inspect components
  • Determine component useful life
  • Assess remaining life and determine replacement year
  • Determine replacement cost

Guidelines and reference material are available to assist with this effort.  Many published by government  agencies and professional organizations.  Visit the Knowledge Base page for a list.

Financial Analysis
  • Determine funding goal
  • Identify current balance of reserve and operations accounts
  • Estimate current and future income
  • Project operational expenditures and future reserve fund needs
  • Prepare statement of limitations and assumptions

The best available tool for performing the financial analysis is the Reserve Funding Analyzer (RFA) ... available for purchase here.

Phase 3:  Communicate

Communicate the results for disclosure and implementation.  Create a report and distribute it to all stakeholders.  The Reserve Funding Analyzer will create the reserve study report using your data.  Follow through with implementation.

Phase 4:  Update

Routinely update the reserve study ... preferably annually.

Design by Reserve Study HOA