If you manage rental properties within a homeowners association (HOA), understanding the HOA reserve fund is more than a financial detail—it’s essential to keeping your operations smooth and your residents satisfied. In this post, we’ll break down what an HOA reserve fund is, how it’s used, and why property managers should care.
What Is an HOA Reserve Fund?
An HOA reserve fund is money set aside by the homeowners association to cover large, non-routine expenses—things that come up every few years, but can’t be handled by the monthly operating budget alone.
Think of it like a rainy-day fund for the community. While the HOA’s operating fund covers regular, recurring expenses (like landscaping or trash removal), the reserve fund is used for big-ticket items that require long-term planning.
What Does the Reserve Fund Cover?
HOA reserve funds are typically used for capital improvements or major repairs. These are usually predictable expenses that occur on a cycle and affect the entire community. Common examples include:
- Roof replacement for shared buildings
- Repaving roads, driveways, or parking lots
- Replacing fencing, gates, or retaining walls
- Pool resurfacing or major amenity upgrades
- Painting or structural maintenance of exterior buildings
- Elevator repairs in multi-story buildings
- Replacing HVAC or plumbing systems in shared spaces
- Renovating clubhouses or fitness centers
- Large-scale landscaping or irrigation system updates
Every HOA is different, so the actual list of covered expenses depends on the community’s size, design, and governing documents.
What’s the Difference Between a Reserve Fund and an Operating Fund?
While both funds are essential, they serve very different purposes:
| Operating Fund | Reserve Fund |
| Covers day-to-day expenses like utilities, janitorial services, and landscaping | Covers long-term, non-recurring costs like roof replacement or paving |
| Budgeted for annually | Budgeted for over several years |
| Funded by monthly dues | Funded by a portion of monthly dues, based on reserve study recommendations |
In short: the operating fund keeps things running today. The reserve fund prepares for what’s coming tomorrow.
Why Is the Reserve Fund Important for Property Managers?
You may not manage the HOA’s finances directly—but the state of the reserve fund affects how well you can manage the properties within the community. Here’s why it matters:
1. Fewer Surprises
When an HOA doesn’t have enough in reserves, it often turns to special assessments—large, one-time fees charged to homeowners to cover urgent costs. These surprise charges can frustrate tenants and owners alike, and may even disrupt leasing or renewal plans.
2. Easier Long-Term Planning
A healthy reserve fund allows for predictable maintenance schedules. When the HOA has planned ahead for major repairs, property managers can better coordinate move-ins, schedule vendors, and communicate with residents.
3. Higher Property Value
Communities with well-funded reserves and up-to-date amenities are more attractive to buyers and renters. It signals good management and reduces the chance of deferred maintenance or unexpected costs.
4. Better Resident Experience
Nobody wants to live in a community with crumbling sidewalks, broken gates, or closed amenities. The reserve fund helps keep everything in good working order—which helps you deliver a better living experience.
How Is a Reserve Fund Calculated?
HOAs typically use a reserve study to determine how much money they should set aside each year. A reserve study is a professional assessment of the community’s physical assets—what they are, what condition they’re in, how much they’ll cost to repair or replace, and when that work is expected to be needed.
Most reserve studies include:
- An inventory of shared assets
- An estimate of each asset’s remaining useful life
- The current cost of repair or replacement
- A funding plan that outlines how much the HOA should contribute annually
Reserve studies are usually updated every 3–5 years to stay accurate. Some states legally require them.
What Happens If the Reserve Fund Is Underfunded?
When a reserve fund is underfunded, the HOA is left with few options—and none of them are ideal:
- Special assessments are issued to homeowners, often with little notice
- Deferred maintenance can lead to declining property values and increased resident complaints
- Emergency loans may be required, adding interest costs and long-term debt
- Legal disputes can arise if residents feel assessments or neglected maintenance were mishandled
Property managers should stay aware of a community’s financial health and raise concerns if a property consistently struggles with emergency costs or deferred projects.
Who Decides How Reserve Funds Are Used?
The HOA board, often with input from a property management company or reserve analyst, decides when and how reserve funds are used. These decisions are usually guided by:
- The community’s CC&Rs (Covenants, Conditions & Restrictions)
- The most recent reserve study
- Vendor estimates or bids for the work being considered
- Community votes or owner input (depending on the project)
As a property manager, staying informed on how these decisions are made—and when major projects are planned—can help you communicate clearly with owners and residents.
Can Reserve Funds Be Used for Other Expenses?
Generally, no. Reserve funds are typically restricted to capital improvements or major repairs listed in the reserve study. Most HOAs prohibit using reserve funds for operating costs or day-to-day expenses unless there’s a specific emergency—and even then, doing so may require a board vote or homeowner approval.
Frequently Asked Questions
How often are reserve funds reviewed or updated?
Most HOAs review their reserves annually as part of the budget process, and conduct a full reserve study every 3–5 years.
What’s a “fully funded” reserve?
A fully funded reserve is one where the HOA has saved enough to cover 100% of its projected future repair and replacement costs, based on the reserve study.
Is there a standard percentage for reserve contributions?
While there’s no one-size-fits-all number, many experts recommend contributing 10–40% of the annual HOA budget to reserves, depending on the community’s age and assets.
Can tenants see the HOA’s reserve fund details?
Typically, no—reserve fund documents are available to owners, not tenants. However, if you’re managing on behalf of an owner, it may be useful to request this info to help with planning or disclosures.
How can property managers work with HOAs on reserve-related projects?
Stay proactive. Ask for maintenance schedules, attend board meetings when possible, and maintain good relationships with vendors. Your communication can help prevent issues before they start.
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