Reserve Fund
A reserve fund is money set aside by a homeowners association (HOA) or condominium association to pay for major repairs, replacements, and capital improvements to common areas and building systems. These funds are collected through monthly assessments from unit owners and are kept separate from operating expenses. Reserve funds are typically used for items like roof replacement, HVAC systems, elevators, and parking lot resurfacing.
Example
“The condo association increased monthly fees to build up the reserve fund for the upcoming roof replacement project.”
Memory Tip
Reserve sounds like 'preserve' - you preserve money today for tomorrow's big expenses.
Why It Matters
A well-funded reserve account protects property owners from unexpected large special assessments and helps maintain property values by ensuring the building and common areas remain in good condition.
Common Misconception
Many buyers assume that low monthly HOA fees are always better, not realizing that inadequate reserve funding often leads to much more expensive special assessments down the road.
In Practice
When buying a condo, a buyer discovers the building's reserve fund is only at 15% of recommended levels and the 20-year-old roof needs replacement soon, meaning owners will likely face a $10,000 special assessment within two years of purchase.
Etymology
From French 'réserver' meaning 'to keep back,' describing money kept back from current expenses for future needs.
Common Misspellings
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