Reserve studies may not be the most exciting topic — but they are one of the most important tools a board can use to protect a community’s long-term financial health. A reserve study isn’t just a report; it’s a roadmap that helps boards plan responsibly, avoid costly surprises, and reduce reliance on special assessments.
For most homeowners, their property is their largest investment. A well-maintained, properly funded community protects that value over time. This guide walks through what a reserve study is, how to read it, how much is enough, and how the rules apply in Texas.
What a reserve study actually is
A reserve study is a professional analysis that identifies the condition of a community’s major common-area assets and sets money aside for their eventual repair and replacement based on their useful lives. It is made up of two parts:
- The physical analysis — an inventory and condition assessment of common-area components: roofs, pavement, elevators, pools, painting, mechanical systems, and more.
- The financial analysis — a long-range funding plan showing how much should be set aside each year so that, at the end of each asset’s useful life, it can be restored without a special assessment.
The logic is straightforward: as an asset is used, it degrades. The association should set aside the corresponding amount each year, so the owners who benefit from an asset’s life are also the ones funding it. A reserve study gives you a starting point for how much cash you need on hand and how long you have until you need it.
Why it matters
Every community faces the ongoing challenge of common-area deterioration. Roofs wear out, pavement cracks, and mechanical systems reach the end of their lives. Ignoring these inevitable costs leads to special assessments, deferred-maintenance headaches, and declining property values.
When a community doesn’t follow its reserve funding plan, one of two things usually happens: projects get deferred (often leading to higher costs later), or supplemental funding becomes necessary — loans or special assessments. Neither is ideal, and both place additional strain on homeowners and boards. The tragic 2021 collapse of Champlain Towers in Surfside, Florida put a national spotlight on the existential threat of underfunded infrastructure.
Reserves are not a general rainy-day fund. They’re an earmarked, special-purpose savings account for specific major components — funded on a schedule tied to how long those components last.
Percent funded, explained
The single most important number for evaluating reserve health is percent funded — the ratio of what’s currently in the reserve account to what should be there. The “should be there” figure is the fully funded balance: the total that should be set aside at any given point based on the accumulated deterioration of all community assets.
The calculation is simple — divide the current reserve balance by the fully funded balance. If a reserve study indicates the community should have $500,000 set aside and the current balance is $350,000, the community is 70% funded.
Industry professionals and the National Reserve Study Standards generally recognize broad ranges of health:
- Below 30% funded (at risk): high probability of special assessments or deferred maintenance.
- Roughly 30–70% funded (fair): some risk; needs a clear plan to improve.
- 70–100% funded (strong): the widely cited target range for a well-funded community.
The bottom line: the rule of thumb provides a snapshot, but boards need a current reserve study and a long-range financial plan to make confident decisions about the community’s future.
How much is enough
Most professionals recommend allocating 15–40% of total annual assessment income to reserves. The exact percentage depends on the community’s age, asset condition, upcoming major projects, and current funding level. A newer community with few shared amenities may fall on the lower end; an older property with pools, elevators, and extensive common areas will need more.
You may still hear an older “10% of the budget” rule of thumb. Many managers set reserve contributions as a flat 10% — or whatever is “leftover” after the other budget items are finished. That approach is flawed and potentially dangerous. Reserve contributions should actually be the first item on your budget, not the last, and your reserve study’s funding plan should guide the number — not a generic benchmark.
Three types of reserve study
Reserve studies come in three levels of depth, and a healthy community typically cycles through them over time:
- Full study with site inspection — the most in-depth: a thorough inspection of all common areas to identify and quantify components and estimate repair or replacement costs. This most comprehensive version typically happens once.
- Update with site visit — built on the full study’s numbers, paired with spot-checking of quantities, to refresh funding needs against changing costs and conditions. This should occur at least every three years.
- Update with no site visit — uses existing data and prior studies to update costs and funding requirements without a new inspection. Useful in the years between site visits.
Most reserve studies are prepared by professionals with a Reserve Specialist designation, who are qualified to build these long-term forecasts. That said, a reserve study is still a forecast — not a crystal ball. Forecasts are inherently imperfect: they’re based on assumptions that change over time, and inflation has a major impact on replacement costs estimated across a 30-year horizon. That’s exactly why studies must be reviewed, understood, and updated regularly.
Texas law & disclosure
Texas does not require HOAs or condominium associations to maintain a minimum reserve balance or conduct a reserve study. This is an important distinction every Texas board member should understand: unlike states that mandate reserve studies or set minimum funding levels, Texas leaves reserve planning largely to the board’s discretion and the community’s governing documents.
The legal framework provides authority without imposing specific requirements. For condominium associations, the Texas Uniform Condominium Act (Property Code Chapter 82):
- Authorizes condo boards to adopt and amend budgets for revenues, expenditures, and reserves under Section 82.102.
- Allows associations to accumulate reserve funds for anticipated expenses and restricts the use of reserves during declarant control under Section 82.112.
- Requires disclosure of reserve amounts in resale certificates, so buyers can see the community’s reserve position.
Even where state law is silent, your CC&Rs and bylaws may include reserve requirements. Governing documents can be stricter than the Texas Property Code — always read yours.
Lenders, Fannie Mae & FHA
Reserve funding isn’t only about maintenance — it increasingly affects whether buyers in your community can get a mortgage. For a condominium project to be considered for Fannie Mae or FHA-insured loans, it generally must demonstrate that at least 10% of the total budget is dedicated to reserve contributions, and lenders may ask for a reserve study no more than 24 months old.
Fannie Mae guidelines effective August 2023 pushed appraisers and lenders to focus more closely on safety, significant deferred maintenance, special assessments, and condo loans. Underfunded reserves and deferred maintenance can severely limit financing options for buyers — which shrinks the pool of people who can purchase in your community and, in turn, pressures property values.
When to update
Communities change. Costs change. Priorities shift. That’s why boards should revisit their reserve study every few years, update it as needed, and use it as a guide for near-term decision-making. If you don’t have a study by around the middle of the fiscal year, budget for one in the coming year and plan to use it for the subsequent fiscal year.
Treat the study as a living document: review the forecasted major expenses over the next 10 to 15 years each budget cycle, confirm they’re still reasonable, and adjust contributions so the reserve can fund projected cash needs in the years ahead.
How RISE helps
RISE brings in-house financial expertise to reserve planning: coordinating professional reserve studies, building long-range funding plans, and making reserve contributions the first line of the budget rather than the last. Our budget analysts help boards read percent-funded, plan for major components, and reduce the likelihood of a surprise special assessment down the road.
Reserve planning is one piece of RISE’s broader financial management discipline — accrual-basis accounting, financial statements by the 15th, and audit support. Contact RISE to talk through your community’s reserve position.
Frequently asked questions
No. Texas law does not require HOAs or condominium associations to maintain a minimum reserve balance or conduct a reserve study. The Texas Property Code Chapter 82 (the Uniform Condominium Act) authorizes condo boards to budget for reserves and requires disclosure of reserve amounts in resale certificates, but it sets no minimum funding level. Boards should still check their own governing documents (CC&Rs and bylaws), which may impose reserve requirements even when state law doesn’t.
The most widely cited rule of thumb is to keep reserves at 70–100% of the fully funded balance. Industry professionals and the National Reserve Study Standards generally treat below 30% funded as “at risk,” with a high probability of special assessments or deferred maintenance. Percent funded is a snapshot, though — a current reserve study and long-range plan matter more than any single number.
Communities change, costs change, and priorities shift, so boards should revisit the study every few years and update it as needed. A common professional cadence is a full study once, then updates with a site visit at least every three years, with lighter no-site-visit updates in between. Because a reserve study is a forecast built on assumptions — especially about inflation over a 30-year horizon — it has to be reviewed and refreshed to stay useful.
The operating budget covers recurring, predictable costs — management, utilities, landscaping, insurance. Reserves are an earmarked, special-purpose savings account for major repair and replacement of common-area components: roofs, elevators, pavement, pools. Reserves are not a general “rainy-day fund”; they fund specific assets on a schedule tied to those assets’ useful lives.