Friday October 03, 2025
What is a reserve study?
An HOA reserve study is a planning tool that helps Illinois associations prepare for major repair and replacement costs over time. The study looks at the physical components the association maintains — such as roofs, sidewalks, parking lots, elevators, pools, and clubhouses — and compares them against association funds. By combining a property inspection with a financial review, the reserve study projects when repairs will be needed and how much they may cost. In Illinois, an HOA reserve study can give board members a realistic roadmap for long-term budgeting. Without one, associations may find themselves unprepared when big expenses arrive, leading to surprise special assessments or deferred maintenance.This article is not intended to and does not constitute legal advice or create an attorney-client relationship. Board members should consult their association’s attorney to discuss the legal implications of their decisions or actions prior to proceeding.
Types of reserve studies
There are three main types of HOA reserve studies that Illinois communities typically use, depending on their stage of planning and budget needs:
- Full reserve study: This includes a detailed site inspection, a full inventory of common area components, and a complete financial analysis. It is usually performed every 5–10 years.
- Update with site visit: This update includes a physical inspection and a refresh of the data in the existing study. Illinois boards typically schedule these every 3 years to stay current.
- Update without site visit: This is a less expensive option that uses existing data and updated financials, but no on-site inspection. It can be useful in years between full updates, though it is less detailed.
Creating your HOA funding plan
In Illinois, boards typically review the funding models provided by their reserve specialist alongside their property management company to decide which approach fits their community best. When creating community association budgets and funding plans, common strategies include full funding, baseline funding, and threshold funding, each carrying different levels of financial risk and predictability.- Full funding means contributions are set to keep reserves at or near 100% funded at all times. For example, if a parking lot replacement will cost $150,000 in 10 years, the board saves enough each year to have the full amount available when the project comes due. This is the most conservative option and minimizes the chance of special assessments.
- Baseline funding focuses on keeping reserves from dropping below zero. Using the same parking lot example, the board might plan smaller annual contributions, knowing reserves will run lower in the short term but still recover in time for the project. This approach carries more risk but reduces assessment increases in the near term.
- Threshold funding sets a minimum balance (or threshold) that reserves should never fall below. A board might decide that reserves should not dip under $150,000, and contributions are adjusted to protect that minimum. This strikes a balance between stability and flexibility.
How often should Illinois HOAs update a reserve study?
Illinois does not mandate how often an HOA reserve study must be completed, but industry best practice suggests a full study every 5–10 years with updates every 2–3 years. This rhythm allows boards to stay ahead of changes in property condition and construction pricing. Skipping updates can leave the board working with outdated numbers, which may result in shortfalls when large projects come due. Regular updates also help with credibility. When homeowners ask why assessments are increasing, being able to point to a recent HOA reserve study with professional recommendations gives the board a solid foundation for explaining decisions.What exactly is a reserve fund?
A reserve fund is an account where money is put aside to pay for large capital expenses that are expected to arise over the next 30 years. This money is exclusively for common-property components that have a limited useful life. Maintaining an adequately funded reserve account means your association will have the money available to replace expensive items (typically those that cost more than $10,000) and make major repairs when the time comes. Any funds available for reserves should exclude operating monies and include only cash and investments and other net assets available for reserve fund expenditures.Understanding the role of Illinois HOA reserve fund laws and restrictions
Your governing documents — and in some cases, Illinois HOA laws — make it mandatory that an association maintains a reserve fund. In Illinois condominiums, all budgets adopted by a board, “on or after July 1, 1990 shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements.” Determining the appropriate amount of reserves is stated in Chapter 765 ILCS 605, Section 9(c)(2) of the Illinois Condominium Property Act.For non-condominium common interest communities like HOAs, the Common Interest Community Association Act requires boards to provide owners a proposed annual budget that identifies portions intended for reserves and to disclose reserve information.
What are the risks of underfunding your reserves?
Underfunded reserves can impact your community’s property values, the safety of residents, and the integrity and appearance of your structures and grounds. In spite of these, research conducted by Association Reserves found that more than 70 percent of the associations they reviewed were less than 70 percent funded! As a result, these communities do not have the money to pay for all of the major expenditures they are expected to face. Why is this the case?According to CAI (Community Association Institute), “Uninformed homeowners perceive reserves as increased financial burdens rather than financial protections.” Additionally, many homeowners and associations still have not financially caught up from years of slow economic conditions. As a result, association boards continue to seek ways to minimize assessments/dues, both for existing homeowners and for buyers looking to purchase within their community.
Unfortunately, this only delays — and most likely increases — the financial burden on homeowners. The only options for completing projects when an association is underfunded are to significantly increase assessments immediately, impose a special assessment, or take out a loan. What frequently happens, though, is that the work simply doesn’t get done.
"Communities that are underfunded often end up deferring needed repairs."You may hear that associations should allocate between 15 and 40 percent of their assessments toward their reserve fund, but Martin cautions against using fixed numbers as guidelines.
Jacque Martin, director at Reserve Advisors, a reserve study company that has worked with many FirstService Residential communities.
"You can’t simply decide to allocate a percentage of your fees toward reserves. You need to base the amount on an up-to-date reserve study."
Jacque Martin, director at Reserve Advisors
About FirstService Residential
From coordinating the inspection to guiding boards through funding decisions, our team partners with communities to reduce financial surprises and protect property value. Our local expertise, backed by national resources, means we understand both the unique needs of Illinois properties and the broader best practices that keep associations strong.If your board is preparing for its next HOA reserve study or wants guidance on creating a funding plan, contact FirstService Residential today to learn how we can support your community.