Understanding repairs and replacement reservesThere’s peace of mind in having an emergency fund baked into your savings plan. The same goes for real estate. It’s hard enough to budget for annual repairs and maintenance, let alone if a hurricane blew the roof off your condo building. That’s where a replacement reserve fund comes in. Repairs and replacement reserves go towards large-scale projects that benefit all property owners. If you own property managed by a homeowner’s association (HOA) or other governing body, you’re likely already paying a monthly maintenance fee. It’s common for a percentage of these monthly dues to go towards a repairs and replacement reserve for the property. These monthly fees can go up if a community or property needs more funds to cover an expense. HOA members vote to make a change like this. Example: Elena and Kath are neighbors in a gated community with an HOA. On a morning walk, they notice that someone damaged the subdivision’s front entrance gate. They report the damage, and the HOA votes to use some of the replacement reserve funds to fix the gate.
TakeawaysIn short, repairs and replacement reserves are:
- Liquid funds for long-term repairs or property emergencies
- Used only when authorized by a governing body (like an HOA)
- Paid by property owners on a monthly basis
- Subject to changes, depending on the needs of the community