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How Often Should You Update Your Reserve Study?
The Building Group recommends keeping your reserve study up-to-date is critical to enabling boards to make informed decisions that maintain the investment of homeowners. Each property is unique, as is the appropriate interval between doing reserve study updates. An appropriate timeframe to update your reserve study will vary based on the specifics of your property.
A reserve study update with a site inspection (Level II) comprises both a physical and financial analysis. The physical analysis includes a thorough condition assessment of each common element, which allows the reserve study consultant to consider:
Changes in interest and inflation rates.
Changes in the rate of deterioration of components (Did the rate of deterioration or development of issues increase or decrease since the last site visit? This will impact the timing of the remaining useful lives of major property components).
Changes in code or ordinances (Does the building now require OSHA roof anchor installation/modifications for example?).
Changes in board discretion with respect to the scope of projects (Will the association now re-design the lobby instead of simply replace finishes?).
Changes in preventative maintenance practices (for better or worse).
The timing of major projects may also dictate the timing of reserve study updates. Getting the reserve study up-to-date just prior to a major project can provide guidance to the board with respect to funding options, including the possible use of a loan. Reserve study updates completed shortly after capital intensive projects can guide an association towards re-building a sufficient reserve balance.
Based on our experience in conducting 24,000+ reserve studies, we opine that older/more complex properties should likely update every 2- to 3-years. One example of this type of development is a high-rise structure built prior to 1980. This type of property typically comprises numerous pieces of mechanical equipment, many of which may be approaching the end of their useful lives. Newer/less complex properties can likely get away with updating their reserve study every 3- to 5-years as there are, generally speaking, fewer major components needing near-term replacement.
The timing above serves as general guidance. Each community is unique, as are the factors that drive the need to update an existing reserve study. We have long-standing clients who update their reserve studies more frequently than we would even suggest. These clients all have 3 things in common:
Sufficient funds available to conduct projects in a timely manner.
Ability to easily adjust to and account for changes in code or ordinances.
Flexibility to adjust to increases in costs while avoiding the need for special assessments and loans.
As a point of reference, the following graph notes the historic update intervals for Reserve Advisors clients in Illinois.
39% of reserve study updates are conducted within three years of the previous study. And, 88% of reserve studies are updated no later than 5 years from the previous study.
Do you have questions about updating an existing reserve study? The Building Group works with many study providers and is happy to discuss your association’s current reserve study and whether you should consider having it updated.