What is a reserve study? A guide for Texas condos and HOAs

What are condo/HOA reserves?

Condo and HOA reserves are funds set aside for major repairs and replacements that are expected over time. Rather than paying for those costs entirely from the annual operating budget, the association builds reserves so money is available when larger projects come due. A reserve study helps the board of directors estimate those future costs and decide how much should be set aside.
 

What is a reserve study?

A reserve study is an inspection and financial review of the major shared components an HOA or condo association is responsible for. It looks at the condition of those assets, estimates how long they are likely to last, projects future repair or replacement costs, and compares those needs with the money currently set aside in reserves.
 

Why does my board need a reserve study?

Think of a reserve study (or “capital reserve study”) as the ultimate budgeting tool — a thorough health check-up for your association’s assets. A reserve study is a deep dive into your association’s current finances, how your community is doing overall, and predicts when things on your property might need to be fixed or replaced.

A reserve study gives your board a clear financial plan to keep your community’s assets well-maintained.
 

Reserve study process

A comprehensive reserve study has two main parts:

1. Physical analysis: Your reserve specialist looks at the current state of your community’s shared spaces and estimates the cost to repair or replace major areas.
    
2. Financial analysis: The specialist checks how much money is in your reserve fund and suggests how much you should contribute to keep things maintained in your community.

Within this full reserve study, there are five steps:

1. Inventory: Your reserve specialist will list all the major components of your community.
    
2. Assessment of condition: The specialist will then evaluate and note the condition of each component.
    
3. Estimates: Your reserve specialist will approximate each component’s longevity and replacement cost.
    
4. Status of funding: The specialist will assess your association’s current fund balance.
    
5. Plan for funding: After evaluating your community, its components, and your association’s current reserve fund, your reserve specialist will work with your board to create a financial plan for future funding needs.

A comprehensive reserve study is detailed and more expensive, but you typically only need one full study unless you want a second opinion later. After the initial study, you can opt for less-detailed, more affordable updates, sometimes without a site visit later to keep your reserve funding in check.
 

Types of reserve studies

Reserve studies generally fall into three levels, depending on how much information the association already has and whether an onsite inspection is needed:

• Full reserve study: This is the most comprehensive option. It includes an onsite inspection, a review of major shared components, estimates for remaining useful life and replacement costs, and a funding plan.
   
• Update with a site visit: This builds on an existing reserve study with a new onsite review. The specialist checks current conditions and updates cost estimates or timelines where needed.
   
• Update without a site visit: This refreshes an existing study using current financial information and updated assumptions, without another onsite inspection.

The right approach depends on how old the existing study is and how much has changed in the community since it was completed.
 

How often should my Texas COA or HOA do a reserve study?

Your COA or HOA should have different levels of reserve studies performed depending on your needs, which may include:

• Time-based: You should revisit a full Level 1 study at least every 3–4 years. If you have loans, your lender might have specific update requirements.
   
• Major repair: Update the study when something major gets repaired.
   
• Adding assets: Bring the study up to speed when new amenities like playgrounds or pools are added. Learn more in our pool inspection checklist.
   
• Issue/event: If events like weather damage impact your assets, it’s time for an update.

Three types of funding for reserves

The National Reserve Standards outline three main goals for reserve funding:

1. Baseline funding: This approach aims to keep the reserve balance above zero. It provides the minimum level of funding so that the reserve cash remains positive but doesn’t offer as much buffer compared to other strategies.
    
2. Full funding: This approach aims to keep reserves at or near 100% funded. An example approach to this: Each year, set aside a portion of the replacement cost based on the asset’s lifespan. So, for an asset with a 20-year life, you’d save 5% of its cost each year.
    
3. Threshold funding: This method serves as a middle ground. It targets either a specified cash amount or a certain percentage of the funding goal, providing a balanced approach between minimal and full funding.

How much does a COA or HOA reserve study cost?

Costs can vary based on your community's size and the level of analysis needed. However, don’t let the price stop you from doing a reserve study — it’s an investment in your community’s future and will help you spend your association’s funds wisely.

Again, healthy reserves can reduce reliance on borrowing and help prevent large, unexpected special assessment fees (which no one wants).

See long-term consequences of not doing a reserve study here.
 

Benefits of a reserve study for Texas COAs and HOAs

Just because a reserve study isn’t legally required under Texas HOA laws, your COA or HOA will benefit from it for several reasons:

• Avoid special assessments or loans: Proper planning reduces the need for unexpected HOA fees or borrowing.
   
• Show good financial stewardship: Demonstrates to residents that you’re managing funds responsibly
   
• Simplify budgeting: Makes annual budgeting easier
   
• Plan for repairs and replacements: Helps you better prepare for future expenses
   
• Boost property values: Well-maintained properties are more valuable.
   
• Schedule capital projects: Makes it easier to plan and budget for large projects
   
• Accurate vendor bids: Provides a more precise basis for evaluating contractor proposals

About FirstService Residential

FirstService Residential is North America’s leading property management company and a trusted partner to communities across Texas. For more than two decades, we’ve provided comprehensive property management services that help boards, owners, and residents protect their investments and enhance daily life.

Our Texas team offers tailored support that includes financial management, maintenance coordination, industry-leading technology, local expertise, and 24/7 customer care. We simplify property management so you can focus on what matters most.

Contact us today to learn more.

This information is provided for general informational purposes only and is not intended to constitute, and should not be relied upon as legal, regulatory, financial, or operational advice, or as a representation or guarantee of any specific services, capabilities, or outcomes. Property management needs, regulatory requirements, market conditions, and available services vary by jurisdiction, property type, and community. FirstService Residential provides services through locally based affiliates and associates, and services and results may vary by community, region, contractual terms, and applicable law.