what is the meaning of reserves?
According to the dictionary, reserves are money or assets that can rapidly be converted into cash. Reserves are usually held in accounts based on companies’ policies where they are accessible to meet planned or unexpected demands or projects.
In real estate, reserves are funds saved in accounts managed by a homeowner association (HOA). This money is used to cover expected or unexpected repairs on the association properties. Every homeowner in a condo or other HOA managed complexes pays a monthly fee known as the HOA fee. This fee is the one used to fund the reserve account.
What does the reserves cash do?
As noted by Bankrate, reserves are used to cover special expenditures such as changing of assets, replacing some features on the property, etc.
How does the homeowner association determine what the reserve money can do? To determine the use of reserves, the HOA will hire a third party that will conduct an inspection of the property. During this inspection, the independent consultant will evaluate HVAC systems, heating, roof, etc.
After this study, results will be submitted to the management team where they will be analyzed. The association will then decide what should be repaired over time and how much they will cost. After this step, the HOA will put reserves in an appropriate account and the money will remain there until it is ready to be used.
What are the benefits of reserves?
Reserves are very important as they help condos and other HOA managed building to cope with unexpected and complicated projects. For example, if the roof of a condo complex is unexpectedly damaged by hail, the HOA team will use the reserves to put up a new roof. Without this money, tenants and condo owners would have huge discomforts. As a result, the planned unit development could run out of clients and lose money in the end.
