Whether you're on a board or buying a unit, you don't need to be an engineer to read a reserve study well. Focus on three things — and watch for a few specific red flags.
Current reserve
What is the current balance, or the balance as of the last fiscal year end, and how does it compare to budget? If it's significantly less than projected, that's a red flag — inquire further as to why.
Reserve contributions
What was the total contribution to the reserve? What is it this year and next year, and how much of an annual increase is budgeted? Is the increase greater than inflation? Is the corporation actually following the contribution schedule?
- If the annual contribution is increasing by more than about 4% per year, that's a sign the reserve is underfunded — and fees will rise faster than expected.
- If the actual contribution is less than the budget set out in the study, that's a red flag: the corporation is ignoring the study's recommendation, which almost guarantees future shortfalls and special assessments.
Special assessments
Is there a planned special assessment in the study or the reserve plan? What's the per-unit amount, and when is it? If a special assessment is required, informing owners early and building a payment plan over multiple years is the responsible approach.