Reserve Planning: 7 Best Practices for Co-Op, Condo and HOA Boards

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Planning for the Future of Your Property

As a board member for a co-operative (co-op), condominium (condo) or homeowner’s association (HOA), you have two primary goals in mind: sustaining your property well into the future, while acting in the best interest of your owners. Achieving this balance is often easier said than done.

Sometimes, a major repair will thrust an unexpected expense into your budget. Other times, a new regulation will require adding, deleting, fixing or taking some action by a certain deadline, making the spend nondiscretionary. Regardless of the particular disruption, sustaining a property for the benefit of its owners all comes down to one thing: cash flow — and having enough of it to avoid imposing an unplanned assessment or abrupt increase in common charges for your owners.

That’s where a proactive approach to your reserves can be game changing. While the appropriate amount will differ property by property, every board should treat reserves for its co-op, condo or HOA the same: as a core part of its annual financial planning.

If your board could be more deliberate about its reserves, or you just need some quick reminders for your upcoming financial planning season, we offer the below best practices — with the objective to help your board plan for the future of your property, instead of just react to it.

1. Begin with Your Annual Budget and Capital Plan

Your annual budget and multi-year capital plan should both include intentional reserve contributions. Your multi-year capital plan should additionally identify the major components of your property, expected timing of work and estimated costs. Energy efficiency, building safety and other local requirements can also affect future capital needs. For example, boards managing New York City properties may need to consider Local Law 97 when developing long-term capital plans. Your board should understand all applicable capital requirements and update its plan if work scope or costs change.

2. Consider a Formal Reserve Study

Conducting a formal reserve study can add discipline, particularly if your property has significant systems, aging infrastructure or substantial anticipated work. In many communities, a reserve study is a voluntary planning tool, not included as supplementary information in the audited financial statements. However, certain states have specific reserve-study, funding, inspection or owner-disclosure requirements. Your board should understand any requirements that apply to your property.

3. Honor the Difference Between Operating versus Replacement Reserves

There are two types of reserves: operating and replacement reserves. A common mistake boards often make is to comingle their use of these funds. It’s critical to understand and honor their differences:

• Operating Reserves: Support short-term liquidity, including timing differences in cash receipts and disbursements, as well as unexpected noncapital costs.
  
  
• Replacement Reserves: Fund significant future repairs and replacements, such as façade work, roofs, elevators, boilers and HVAC systems.

Boards should identify the purpose of these reserves separately, then ringfence the funds so those set aside for a replacement purpose are not inadvertently used to cover routine operations.

4. Be Mindful of How Reserves Affect Your Financing

Deferred maintenance and planned capital projects are frequently reviewed by lenders and prospective buyers. Sometimes minimum reserve requirements are imposed. For example:

• Fannie Mae Full Review: Fannie Mae’s Full Review requirements for condos currently call for an annual minimum replacement-reserve allocation of 10% of budgeted income assessments, which will increase to 15% in January 2027.¹

While the Fannie Mae requirement is just one example, your board should understand all its lender reserve conditions and recognize the attractiveness of strong reserves to potential buyers.

5. Reevaluate Annually

Co-op and condo boards should evaluate operating- and replacement-reserve needs annually and consider designating operating surpluses, transfer-fee income and other available funds for future major repairs and replacements. Where permitted by your governing documents, your board may establish a designated operating- or capital-reserve fund to set aside amounts for anticipated future needs while retaining flexibility to respond to changing circumstances.

• Co-Ops: This approach may be particularly useful if your property is a co-op, where formally restricted reserve funds are less common. When reserves are insufficient, your boards may also consider special assessments or financing based on a project’s scope, timing and affordability.

6. Align Your Investment Policy with Your Property’s Capital Needs

Another opportunity to control cash flow for the needs of your property is to adopt an investment policy that not only prioritizes a philosophy of safety and liquidity, but times maturity dates to align with expected uses of those funds. Thinking of your reserves within the context of your bigger financial plan helps make this a more organic process for your board.

7. Communicate Your Reserve Strategy

Last but not least, it’s important for your board to clearly communicate its reserve strategy so your residents understand how current contributions support future stability. Owners who are provided insight into the property’s long-term plan are more likely to support unavoidable assessments or increases for work they understand will benefit them and sustain their home.

Contact Us

Our team assists property boards every day with evaluating and planning for their capital needs, including intentional reserve management. By working with boards early in their budget and financial-planning process, we help align property needs with cash flow. Let us help your board.

If you have any questions, please contact your PKF O’Connor Davies client service team or:

Samuel Botta, CPA
Partner
sbotta@pkfod.com 

¹ Fannie Mae Lender Letter LL-2026-03, issued March 18, 2026, increases the condominium Full Review replacement-reserve minimum from 10% to 15% for loan applications dated on or after January 4, 2027. Requirements change and should be confirmed with the applicable lender for a specific transaction. This article provides general information and is not legal, engineering, investment or lending advice.