A reserve study helps an HOA or condo plan for big repairs and replacements before they become emergencies. It’s one of those tools that keeps communities financially stable. But are associations in Texas actually required to do one?
What is an HOA Reserve Study?
A reserve study for condo association or HOA is a financial planning report that looks ahead at major future expenses. It evaluates shared property components like roofs, pavement, and amenities, then estimates when they will need repair or replacement.
A reserve study also measures whether the current reserve fund is enough to cover those costs. It is an early warning system that tells boards if they are saving too little or spending too much. In short, it helps associations plan rather than react when something breaks.
Are There HOA Reserve Study Requirements in Texas?
Is a reserve study required by law in Texas? The short answer is no. Texas does not have a statute that forces HOAs or condo associations to conduct one.
State Laws
The Texas Property Code talks about budgeting and reserves for condominiums under Chapter 82. It gives associations the authority to maintain budgets for revenues, expenditures, and reserves. It also requires that condo resale certificates disclose the amount of reserves for capital expenditures.
That said, there’s no part of the law that says an HOA or condo must perform a reserve study. It is left up to the association to decide if one should be done.
Even with no statutory requirement, it’s still best practice to conduct one anyway. Many boards choose to have an HOA reserve study done, even when it’s not required, because it protects the community’s finances.
Governing Documents
Even if the state doesn’t require it, some associations may find the rule in their own governing documents. The CC&Rs or bylaws will sometimes require a reserve study every few years or set minimum funding levels.
If those rules are set forth in the governing documents, the board must follow them. They carry the same weight as law within the community.
What Does a Reserve Study Include?
A reserve study has two main parts: a physical analysis and a financial analysis. Together, they show what the association board needs to fix, when, and how to pay for it. Let’s break these two parts down even further.
1. Physical Analysis
The physical analysis part involves inspecting shared property elements and making an inventory of what the association maintains. It estimates each item’s current condition, remaining lifespan, and the cost of future replacement or repair.
2. Financial Analysis
The financial side measures the amount of money already in the reserve account. Additionally, it examines whether the current funds are enough to meet future needs. It also creates a funding plan that shows how much the board should save each year to keep the reserve fund healthy.
Types of a Homeowners Association Reserve Study
There are different levels of reserve studies. Associations don’t always need a full version every time. The three types include: a full reserve study, an update with on-site inspection, and a financial update only.
1. Full Reserve Study
A full reserve study is the most comprehensive one. It includes an on-site inspection, full physical and financial analysis, and a new funding plan.
More often than not, associations that have never had a reserve study are choosing this option. If too much time has passed between the initial reserve study and an update, it is also better to redo a comprehensive one.
2. Update With On-Site Inspection
This type is less intensive than a full reserve study but still involves quite a bit of work. The professional revisits the property to verify the condition of components. They will then update the costs and timelines without having to start from scratch.
3. Financial Update Only
A financial-only update focuses on numbers. It doesn’t involve a physical inspection. The consultant updates the study according to inflation rates, cost projections, and funding balances using the old data. This is a much cheaper option but less accurate.
How to Conduct a Reserve Study
Associations need to hire a professional or certified reserve specialist to do a reserve study. It requires both technical knowledge and financial analysis.
That said, the steps involved in performing a reserve study include the following:
1. Take Inventory of Components
First, list every common element the association maintains. This includes buildings, amenities, infrastructure, and equipment. The list will depend on what the governing documents say the association is responsible for.
2. Evaluate Condition
Next, inspect each component to see how it’s holding up. The goal is to determine whether there’s wear, damage, or deferred maintenance. This will help inform the following step.
3. Estimate Lifespan and Replacement Cost
After evaluating the components’ condition, it’s essential to determine how long each item will last. Additionally, calculate the cost to repair or replace each one in the future. The estimate should include inflation and rising labor costs.
4. Assess Current Funding
The next step is to look at how much money is in the reserve fund now, what’s been contributed over the years, and how the association has been using it. This shows whether the current funding level is enough.
5. Create a Funding Plan
Finally, it’s time to combine the data to form a plan. The consultant usually presents a few funding options (aggressive, balanced, or minimal) so the board can choose the one that works best. The result is a written report that becomes part of the association’s financial records.
How Reserve Studies Support HOA Finances
Even without a statutory requirement, a reserve study is one of the smartest financial moves an association can make. With a reserve study, an association can:
- Prevent Special Assessments. When future repairs are planned and funded, there’s less need for sudden one-time payments from owners.
- Improve Long-Term Planning. It keeps the board aware of what’s coming in the next 5, 10, or 20 years.
- Build Lender Confidence. Lenders and insurance companies like to see that the community is financially stable. A current study can make it easier to secure loans.
- Fulfill Fiduciary Duty. A study shows that the board is managing community funds in a responsible manner.
- Keep Dues Predictable. Homeowners prefer steady dues over sudden hikes. A good reserve plan can help make that possible.
Overall, a reserve study will help the board make smart, forward-looking financial decisions rather than react when emergencies occur. In the end, homeowners will remain happy, and property values will stay high.
A Better Future
No state law in Texas requires HOAs or condos to conduct a reserve study. Still, it’s a smart and responsible practice. A well-prepared study can help associations avoid budget shortfalls and keep the community financially healthy for years.
Preferred Association Management Company offers exceptional HOA financial services to communities in Central Texas. Call us today at 512-918-8100 or contact us online to learn more!
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