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HOA Loan Services
Capital planning

Capital planning for reserve shortfalls

Many boards discover the gap the same way: a reserve study lands, the numbers are worse than expected, and nobody is sure what happens next. This is what happens next.

Find the year your reserves run short

Enter the projects your reserve study identified, what they are expected to cost, and where your reserves stand today. Nothing you type is uploaded, stored or sent anywhere.

This tool works from a reserve study or from contractor quotes. If your association has not completed a study in the last three years, that is worth knowing about.

Why a reserve study matters

Who may prepare a reserve study depends on your state and your governing documents: Colorado, for example, accepts an internally conducted study. California requires one at least every three years. Florida requires a structural integrity reserve study for buildings of three or more habitable stories.

You can use this tool without one, working from contractor quotes or your own estimates. A reserve study isn’t a quote for work; current bids override the study’s estimates, so where you have a current bid, plan around it.

Your projects

Take these from your reserve study or from contractor quotes. Enter the total cost you expect to pay in the year the work happens.

Where you stand today

The four ways associations close the gap

Most boards end up combining two of these rather than choosing one. They are listed here in rough order of how much they ask of owners in the year the work happens.

  1. 01

    Draw on existing reserves

    The simplest route, and the one a reserve study is designed to make possible. It works when the fund has been contributed to steadily and the component failing is the one the study predicted.

  2. 02

    Raise regular assessments

    Increases the monthly contribution going forward. It closes a gap slowly, so it suits a shortfall found early. It rarely funds a roof that is already leaking.

  3. 03

    Levy a special assessment

    A one-time charge per unit, due in a lump sum or over a short schedule. It funds the work immediately and puts the whole cost on whoever owns a unit that year, including owners about to sell and owners who cannot pay.

  4. 04

    Finance the work with a loan

    The association borrows against its assessment income and repays over a term. It spreads the cost across the years the new component actually serves, which is closer to how the expense was incurred.

Where financing fits

An association loan is secured by the association’s assessment revenue, not by any owner’s home, and no individual owner is personally liable for it. Lenders look at the operating budget, the reserve study, the delinquency rate and the borrowing authority in the governing documents, not at any owner’s personal credit.

We arrange financing from $100,000 with no set maximum, on terms that typically run 5 to 20 years, and most loans close in 30 to 90 days. There is no upfront cost, and we are paid at closing.

Whether borrowing is the right answer depends on what the study found, what the work costs, and what the association can carry. That is a conversation, not a calculation. It is worth having before a vote rather than after one.

Choosing between a special assessment and a loan is the decision boards get wrong most often.

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What a reserve study tells you, and what it does not

A reserve study is a formal document. It inventories the components the association is responsible for, estimates how much life each has left, estimates what each will cost to replace, and models what the fund needs to hold over time. In several states it is a legal requirement with a defined preparer and a defined interval. California, Florida and Virginia all set their own, and who may prepare it varies: Colorado, for example, accepts an internally conducted study.

Nothing on this page is a reserve study, and nothing here replaces one. If your association is required to have a study, this does not satisfy that requirement.

What a study does not do is tell you what to do about the number it produces. It identifies the gap; it does not weigh a special assessment against a loan, or model what either does to a particular owner’s monthly cost. That decision sits with the board, and it is where most of the difficulty actually lives.

What a capital shortfall actually is

Every association owns components that wear out on a schedule: a roof with a twenty-year life, an elevator with a thirty-year one, asphalt that needs resurfacing long before either. A reserve fund exists so that when each one reaches the end of its life, the money to replace it is already there.

A shortfall is the difference between what the fund holds and what the schedule says it should hold. It is not a sign that something has gone wrong recently. It is usually the accumulated result of contributions that were set slightly too low for a long time, against replacement costs that rose faster than anyone modeled.

This matters because the two facts point in opposite directions. The shortfall took a decade to build, which makes it feel like something that can wait. The component it relates to does not care how long the gap took to appear.

What capital improvement and reserve funds can pay for

  • What reserve funds are for

    Replacing or repairing the major components the association owns: roofs, elevators, private roads, mechanical systems, pool decks, structural elements. The reserve study lists them, estimates remaining life, and estimates replacement cost.

  • What they are usually not for

    Routine maintenance and day-to-day operations belong in the operating budget. Using reserves for operating costs is what turns a funded association into an underfunded one without anyone deciding to.

  • Why the distinction gets blurred

    A component that is repaired repeatedly instead of replaced looks like maintenance in the budget and like deferred replacement in the study. Boards inherit this pattern from previous boards and often do not know it is happening.

Governing documents vary, and some associations draw the line differently from others. Where a component sits is worth settling before the work is scheduled rather than during it.

Now you know the gap. Let’s price it.

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We’ll show you what a loan would cost per unit per month, at no charge and no obligation.