A condo reserve study is a document that identifies the life span and cost of repair or replacement for the components that make up a condo. These components include the roof, plumbing, electric, windows, and common area carpet and lights, among others.
So, the condo reserve study may say the roof will last 10 years and cost $200,000 to repair. The mailboxes will last 20 years and take $10,000 to repair, etc.
A condo reserve study professional prepares the document, and prospective buyers receive a copy.
Why does the condo reserve study matter?
The condo reserve study helps you understand the state of your potential homeowner association’s finances. In turn, you’ll understand if your common charges are at risk of going up or if there will be costly special assessments for projects.
What should buyers look out for?
Let’s say your condo’s reserves are going down each year but no big projects have been tackled. That’s a red flag that the building’s finances are poorly managed. Ditto if the roof will need to be replaced in five years but reserves are low.
You want a building that is already charging a proper rate to cover necessary expenses.
Capital budget v operational budget
A condo reserve study provides information about the building’s capital budget. A capital budget is a budget for irregular and often large expenses, e.g., repairing a roof.
The capital budget is separate from the operational budget. The latter involves recurring expenses: salaries, utilities, and day-to-day maintenance issues.
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