Reserve Fund – Why Does Your Community Need One?
Many homeowners continue to ask the question why does their Community need a reserve fund?
Major components such as a pool, playground equipment, roofs, or siding must be replaced from time to time, regardless of whether or not the Community Association plans for the expense. It is in the Community Association’s best interest to set aside the reserve fund account now. Money contributed to the reserve fund is not an additional expense—it simply spreads out the expenses more evenly. There are other important reasons that Association monies should be put into a reserve fund every month:
Having a reserve fund will meet legal, fiduciary, and professional requirements. A replacement reserve fund may be required by:
• Any secondary mortgage market in which the Association participates
• State statutes, regulations, or court decisions
• The Community’s governing documents
An adequate reserve fund will provide for major repairs and replacements that will be necessary at some point in time. Although a roof may be replaced when it is 25 years old, every owner who lives under or around it should share in its replacement costs.
Incorporating a reserve fund into your Community will minimize the need for a special assessment or loan for capital improvement projects. For most Association members, this is the most important reason.
It should also be noted that the American Institute of Certified Public Accountants (AICPA) requires the Community Association to disclose its reserve fund balance in its financial statements.
Enhanced resale values are just one of the added bonuses for Communities which have a healthy reserve fund balance. Lenders and real estate agents are aware of the ramifications for new buyers if the reserves are inadequate. Many states require Associations to disclose the amounts in their reserve fund to prospective purchasers.
PENCO Management can assist your Association with managing your current replacement reserves to help ensure that these funds are accessible as needed. Our company services New Castle, Chester, Delaware, Montgomery, Berks, Bucks, and Lancaster Counties and has the property management experience needed to successfully maintain your Community for years to come.