Guide for board members
The HOA Reserve Study and the Books: From the Funding Plan to Monthly Transfers and a Percent-Funded Figure
An HOA reserve study is a report, prepared by a reserve study firm, that lists the association's major shared parts, when each will need repair or replacement, what that will cost, and how much to save each year.
This page starts where the study stops. The study is on the table, and the books have to follow it. We use the study's numbers; we do not produce the study. The sample association, Demo Ridge HOA with 60 homes, is invented data.
What is an HOA reserve study?
An HOA reserve study is a report that lists the association's major shared parts, when each will need repair or replacement, what that will cost, and how much to save each year.
A study has 2 parts. The first is a list of the shared parts and their condition: the roofs, the paving, the exterior paint, the fences and gates. The second is a funding plan: what each part will cost, when, and how much to save each year to be ready. The books take their reserve numbers from the plan. How reserve money is recorded once it is saved is in HOA reserve fund accounting.
Who prepares an HOA reserve study?
A reserve study firm or specialist hired by the board. The bookkeeper does not prepare the study. The bookkeeper puts its numbers into the budget and the books.
| Task | Who does it |
|---|---|
| Inspect the shared parts and record their condition | The reserve study firm |
| Estimate what each repair or replacement will cost, and when | The reserve study firm |
| Set the recommended contribution for the year | The reserve study firm |
| Hire the firm and accept the study | The board |
| Decide which funding plan to follow | The board, with its reserve study firm |
| Enter the contribution as the reserve line of the budget | The bookkeeper |
| Record the monthly transfer and each reserve payment | The bookkeeper |
| Report the reserve balance and the percent funded each month | The bookkeeper |
Which numbers in the HOA reserve study do the books use?
3: the component list, the fully funded balance, and the contribution for the year. The first names reserve spending, the second measures the fund, and the third sets the transfer.
| The number | Where it sits in the study | Where it goes in the books |
|---|---|---|
| The component list | The first part: each shared part, its condition and its remaining life | The reserve spending accounts, one per component: 6000 Roofs, 6100 Paving, 6200 Exterior paint, 6300 Fences and gates |
| The fully funded balance | The funding plan: what the fund should hold on the study's date | The percent funded line of the monthly report, read against the reserve fund balance |
| The contribution for the year | The funding plan: how much to save this year | The reserve line of the budget, then the monthly transfer through 9000 Transfer out of operating and 9100 Transfer into reserves |
How does the HOA reserve study become the monthly reserve transfer?
Take the study's contribution for the year, enter it as the reserve line of the budget, and divide by 12. $50,400 a year is a transfer of $4,200 a month.
- 1Take the study's contribution for the year. At Demo Ridge HOA it is $50,400.
- 2Enter it as the reserve line of the budget: $50,400 of the year's dues go to reserves.
- 3Divide by 12 and move that amount from the operating account to the reserve account each month: $4,200.
One number, 3 places, Demo Ridge HOA, invented data
| Where | Line | Amount |
|---|---|---|
| The reserve study | Recommended contribution for the year | $50,400 |
| The budget | Reserve line, for the year | $50,400 |
| The bank, each month | Transfer from the operating account to the reserve account ($50,400 divided by 12) | $4,200 |
| Account | Fund | Amount |
|---|---|---|
| 9000 Transfer out of operating | Operating | -$4,200 |
| 9100 Transfer into reserves | Reserve | +$4,200 |
The reserve line is set first, before the operating lines, because the study fixes it. How the reserve line is set before any other line is in how to prepare an HOA budget. The sheet with that line built in is the HOA budget template.
What does percent funded mean in an HOA reserve study?
Percent funded is the reserve fund balance divided by the study's fully funded balance. A balance of $186,000 against a fully funded balance of $310,000 is 60% funded.
In words: percent funded equals the reserve fund balance on the balance sheet, divided by the study's fully funded balance for the same date. The balance comes from the association's own books. The fully funded balance comes from the study. Both must be for the same date, or the percent compares 2 different days.
Percent funded from the balance sheet, Demo Ridge HOA, invented data
| Line | Where it comes from | Amount |
|---|---|---|
| Reserve fund balance | The balance sheet by fund, reserve column | $186,000 |
| Fully funded balance | The reserve study, same date | $310,000 |
| Percent funded | The first divided by the second | 60% |
We report the percent. Whether it is where the board wants it, and what to do about it, is the board's decision with its reserve study firm. Where the reserve fund balance sits in the monthly report is in HOA financial statements.
How is HOA reserve spending matched to the reserve study?
Record each reserve payment against the component it repairs or replaces, using the study's names. The board can then compare what was spent on roofs with what the study planned.
The HOA chart of accounts has one reserve spending account per component, named as the study names them. This month Demo Ridge HOA paid Example Roofing $18,500 for a roof repair from the reserve account. It is recorded against 6000 Roofs.
The component table with the roof repair, Demo Ridge HOA, invented data
| Component | Fully funded balance | Account in the books | Spent this month |
|---|---|---|---|
| Roofs | $150,000 | 6000 Roofs | $18,500 |
| Paving | $90,000 | 6100 Paving | $0 |
| Exterior paint | $45,000 | 6200 Exterior paint | $0 |
| Fences and gates | $25,000 | 6300 Fences and gates | $0 |
| Total | $310,000 | $18,500 |
The reserve fund started the month at $186,000, took in the $4,200 transfer and $310 of interest, paid the $18,500 roof repair, and ended at $172,010. Over the years, the board can read what was spent on each component beside what the study planned for it.
How often is an HOA reserve study updated?
A study is updated from time to time so its costs and conditions stay current. How often an association must update it is set by state law and the governing documents, a question for its attorney.
When the study is updated, the 3 numbers may change. The bookkeeper then changes the reserve line of the next budget, the monthly transfer, and the fully funded balance the percent is read against. The books follow the study, every time.
Multifamily Bookkeeping puts the study's numbers into the books and reports the reserve balance every month. See our HOA bookkeeping service.