Pros of funding reserves
Pros and Cons of Funding Reserves
When it comes to funding reserves, the task can seem particularly daunting if your association is currently underfunded or in financial turmoil. While properly funding reserves has an overwhelming amount of pros, there are a few ostensible “cons” to this process, though they are generally temporary or perceived in nature.
First and foremost, adequately funding reserves means that you are able to set aside sufficient funds to complete capital projects in a timely manner. If properly funded over time, associations should not run into issues when capital-intensive projects come due such as roof replacements or paving repairs. Remember, maintaining or increasing a property’s value through timely repairs and replacements has tremendous benefits and can only make a board member’s life easier down the road.
Interest will work in your favor if reserve funds are adequate. By maintaining sufficient reserve funds, you’ll be able to invest and generate additional savings through the interest on the balance. This, of course, is a self-explanatory pro to funding reserves. Additionally, funding or underfunding reserves can contribute to the rise and fall of property values. If properly funded, property values generally increase, as the community is able to consistently maintain the quality and functionality of association-maintained components. On the contrary, if your community has insufficient reserve funds or is deferring maintenance, potential homeowners may be swayed from investing in a home within your association.
Maintaining sufficient reserve funds minimizes the chances of surprise special assessments and ensures that the replacement and major maintenance needs of association maintained assets can occur in a timely manner, thereby protecting the value of the residences in the community. With proper reserve fund planning, you are also able to assess consistent annual reserve contributions; ensuring fair and partial equity between those that have owned their units for one year or thirty years.
Cons of funding reserves
So, what are some potential cons to funding reserves? The fact of the matter is that the cons of funding reserves are generally based on opinion or perception rather than fact. However, that does not minimize the effects of increased funding on homeowners.
One potential yet temporary con of obtaining and maintaining adequate reserve funds is that the process may require near-term special assessments or significant raising of dues to
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