Reserve Funding Strategies | What Is The Best One For Your HOA?

Every homeowners association (HOA) is responsible for maintaining common areas and shared assets—roofs, roadways, elevators, HVAC systems, and more. To cover the cost of major repairs and replacements over time, HOAs rely on reserve funds. But how should your board determine how much to set aside and when?

The answer lies in choosing the right reserve funding strategy—a decision that directly affects your community’s financial health, risk exposure, and homeowner satisfaction.

What Is an HOA Reserve Fund?

A reserve fund is a savings account designated for large-scale repairs and capital improvements. It is not used for daily operations or routine maintenance. Reserve funds cover major expenses such as:

• Roof replacements
• Asphalt resurfacing
• Pool resurfacing or equipment upgrades
• Gate and security system repairs
• Elevator modernization

Funding these long-term projects requires a strategic, data-backed approach—often informed by a reserve study, which evaluates the remaining useful life and replacement cost of each asset.

Common HOA Reserve Funding Strategies

There are three primary funding strategies associations use to plan for future expenses:

1. Full Funding Strategy

The full funding model aims to maintain the reserve balance at or near 100% of the calculated “fully funded” amount—the amount your reserve study recommends saving based on asset deterioration over time.

Pros:

• Minimizes the risk of special assessments
• Improves financial transparency and homeowner confidence
• Helps the association meet its fiduciary duty

Cons:

• May require higher assessments in the short term
• Could result in overfunding if assets last longer than expected

2. Baseline Funding Strategy

Baseline funding focuses on keeping the reserve balance from falling below $0 at any point during the projected reserve study period. It ensures that money is available when needed, but only at the last possible moment.

Pros:

• Keeps assessments lower in the short term
• Prioritizes cash flow management

Cons:

• Leaves less margin for error
• Higher risk of special assessments if costs exceed projections

3. Threshold Funding Strategy

Threshold funding allows the reserve balance to fluctuate above a defined minimum threshold, rather than aiming for full funding or a $0 baseline. The threshold is typically a percentage of the fully funded amount (e.g., 70%).

Pros:

• Balances risk and affordability
• Offers flexibility while maintaining a financial cushion

Cons:

• Requires regular monitoring and updates to stay effective
• Still carries some risk of underfunding

Which Strategy Is Right for Your Community?

The best funding strategy depends on several factors:

• Age and condition of community assets
• Size of the community and assessment structure
• Risk tolerance of the board and homeowners
• Results from a professional reserve study
• Market and inflation conditions impacting replacement costs

Partnering with a community association management company like RealManage ensures your board receives expert guidance in reserve planning, budgeting, and execution.

Why Your HOA’s Reserve Funding Strategy Matters

A well-managed reserve fund helps your community:

• Avoid special assessments
• Plan for large expenses without financial disruption
• Protect property values
• Demonstrate responsible governance to homeowners and lenders

Failing to fund reserves adequately can lead to deferred maintenance, emergency repairs, and homeowner dissatisfaction.

Building Long-Term Financial Stability for Your HOA

Choosing the right reserve funding strategy is not just about meeting today's needs—it's about protecting your community's future. By leveraging professional reserve studies, transparent budgeting, and sound financial planning, your board can ensure long-term success and stability.

Ready to take your community to the next level? Contact RealManage today to discover how our trusted, innovative approach to bespoke community association management can empower your board, enhance transparency, and deliver the long-term success your community deserves. With best-in-class technology and personalized solutions, we’re here to help you achieve operational excellence and elevate the living experience for every resident.