Monday September 29, 2025
What are HOA reserves?
HOA reserves are funds set aside by a homeowners association to pay for major repairs and replacements of shared community elements. These expenses are not part of the day-to-day operating budget, but instead cover larger, long-term needs like replacing a roof, resurfacing roads, or upgrading a pool or clubhouse. These funds are usually held in a separate account and built up over time through regular contributions collected as part of association fees. A healthy reserve account helps protect the community from financial surprises and reduces the need for special assessments or emergency fee increases.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.
HOA reserves rule of thumb
The most common HOA reserves rule of thumb is to aim for at least 70% funded. This means the association should have 70% of the amount it will eventually need to cover projected major repairs and replacements. Some experts recommend even higher levels, but many associations find that 70% is a reasonable benchmark that balances affordability with good financial management.What is a reserve study?
A reserve study is a long-term planning tool that helps associations calculate how much to save. It typically includes a list of all major common assets, their remaining useful life, the estimated cost of repair or replacement, and a funding plan to build reserves over time. Reserve studies are usually done every three to five years. In between full studies, some boards opt for an update without a site visit to refresh estimates and reflect inflation or recent repairs.HOA reserve strategies
Having a strategy for building and managing reserves helps associations stay prepared and financially stable. Here are three commonly used reserve strategies:- Baseline funding: This method sets contributions at the minimum needed to avoid a deficit. It meets short-term needs but offers little cushion.
- Threshold funding: The goal is to keep reserves above a certain minimum balance at all times. This is more conservative than baseline funding.
- Full funding: This strategy aims to reach and maintain 100% of the reserve requirements identified in the reserve study.
Common costs
Reserve funds are intended for large-scale repairs and replacements that don’t occur annually. Common costs that are usually paid out of HOA reserves include:- Roof replacement
- Asphalt resurfacing or replacement
- Elevator modernization
- Painting or siding
- HVAC system upgrades
- Pool or fitness center renovations
- Playground equipment replacement
Local considerations
In North Carolina, the NC Planned Community Act sets no mandatory reserve-funding percentage, but it expressly empowers HOA boards to adopt budgets that include reserves for future capital repairs. Climate is another major factor, as coastal storms, humidity, and freeze-thaw cycles can shorten the lifespan of roofs, pavement, and exterior finishes, making accurate timelines essential. Construction costs also vary, so a reserve study company with local experience can provide more reliable estimates. For condo associations especially, reserve studies are increasingly requested by lenders and HOA insurance providers as proof of financial readiness. Working with the right professionals can help your board stay ahead of both physical and financial needs.Determine maintenance vs. reserve components
Properly categorizing your community’s common area components is one of the challenges that comes with managing reserves. Some items will require regular maintenance, such as pressure washing sidewalks and window cleaning; others will need to be replaced, like roofs and mechanical equipment; and still others will require both, such as pools and carpeting.If you want your community components to last until they are due to be replaced, you must budget for maintenance costs every year. If you don’t, you may end up having to replace them before the reserve study’s replacement due date and impose a special assessment or take out a loan. At the same time, you must make a reserve contribution each year to be properly prepared for covering replacement costs when they are scheduled to occur.
Deciding whether items are maintenance vs. replacement (or both) will ultimately determine if they will be listed in your annual operating budget or as part of your reserve inventory. Usually, less expensive items are included in the operating budget, and costlier items are assigned as reserve components so their replacement costs can be financed over a longer time period. If you need help determining whether an item should be included in your operating budget or reserve inventory, consult with your auditor or property management company.
More and more associations, especially for communities that are decades old, are starting to address infrastructure components as part of their budget planning process as well. These are components that last a very long time, are generally out-of-sight and as such, are not often thought of — like sewers. A good practice to follow is to add infrastructure items to your reserve components list when they reach the halfway mark of their expected life spans.
How FirstService Residential can help
Planning for your community’s future doesn’t need to be overwhelming, and you don’t have to do it alone. At FirstService Residential, we work with boards across North Carolina to help navigate the complexities of reserve planning, budgeting, and project execution. Our managers have access to local data, trusted reserve study companies, and financial tools that help boards make smarter, more confident decisions.Whether you’re leading a high-rise in Charlotte or a townhome community in the Triangle, we’ll help you find the right partners and build a plan that supports your community for the long term. Contact us today to learn more about how our team can support your board and simplify your reserve planning process.