Condo Reserve Study: What to Look For and Red Flags to Watch

Why This Matters for Buyers and Owners

A reserve study is the single most important financial document in a condominium association. It tells you whether the HOA has enough money saved to pay for major repairs and replacements — things like roofs, elevators, plumbing systems, parking structures, and siding. If the reserves are underfunded, someone has to pay the difference, and that someone is you.

For buyers, the reserve study is a window into the building’s financial future. A well-funded reserve means stable monthly dues and a low likelihood of surprise assessments. A poorly funded reserve means the opposite: rising dues, special assessments that can run into tens of thousands of dollars per unit, and difficulty selling when the time comes.

For current owners, understanding the reserve study helps you evaluate whether your board is managing funds responsibly and whether your building is on a sustainable financial path. After the Surfside, Florida condominium collapse in 2021, state legislatures across the country began mandating reserve studies and minimum funding levels. Florida’s SB 4-D, for instance, now requires structural integrity reserve studies for buildings three stories or higher. This is no longer optional in many jurisdictions.

The bottom line: if you skip the reserve study, you are buying or owning blind.

Key Terms and Concepts

Before you open the reserve study, make sure you understand these terms:

Term	Definition
Reserve Study	A document that identifies all major common-area components, estimates their remaining useful life, estimates replacement cost, and recommends a funding plan.
Fully Funded Balance (FFB)	The ideal amount of money the reserve fund should hold at any given time, based on the age and depreciation of all components.
Percent Funded	The ratio of the actual reserve balance to the fully funded balance. Expressed as a percentage.
Useful Life	How many total years a component is expected to last (for example, an asphalt shingle roof might have a 25-year useful life).
Remaining Useful Life (RUL)	How many years until a component needs replacement, based on its current condition and age.
Component Inventory	The list of all major common-area items included in the study.
Funding Plan	The recommended schedule of annual contributions to the reserve fund to keep it adequately funded.
Threshold Funding	A strategy that keeps the reserve balance above zero but does not aim for full funding. This is the bare minimum.
Baseline Funding	A funding plan designed to keep the reserve balance from going negative at any point over the projection period (typically 30 years).
Full Funding	A plan that aims to keep the reserve at or near 100% funded at all times.

What to Look For: A Practical Checklist

When you get your hands on the reserve study, work through this checklist systematically.

General Study Quality

• Is the study prepared by a credentialed professional? Look for the Reserve Specialist (RS) designation from the Community Associations Institute (CAI) or a Professional Engineer (PE) license.
• When was the study last updated? Reserve studies should be updated every three to five years at minimum. An update older than five years is unreliable.
• Does it include a physical site inspection? A “full” reserve study includes a site visit. An “update with site visit” refreshes numbers and confirms conditions on the ground. A “no-site-visit update” simply adjusts numbers without looking at the building. Insist on one that includes a site visit.
• How long is the projection period? The standard is 30 years. Anything shorter than 20 years is suspect.

Funding Level

• What is the percent funded? This is the most important number.
  • 70% or above: Generally considered adequate
  • 50-69%: Moderate risk; dues increases are likely
  • 30-49%: Significant risk; special assessments are probable
  • Below 30%: Critical underfunding; expect financial pain
• What is the current reserve fund balance? Compare this to the fully funded balance.
• Does the funding plan show the reserve going negative at any point? If so, a special assessment or borrowing is essentially guaranteed.

Component Inventory

• Are all major systems included? Roof, siding, windows, elevators, HVAC central systems, plumbing (especially risers and mains), electrical systems, paving, pool and amenity areas, painting, and structural waterproofing should all appear.
• Are the estimated useful lives reasonable? A flat commercial roof listed with a 40-year life is unrealistic. An elevator listed at 15 years remaining when it is already 30 years old deserves scrutiny.
• Are replacement cost estimates current? Construction costs have risen sharply since 2020. If the study uses 2019 pricing, the numbers are likely 20-40% too low.

Funding Plan

• What annual contribution increase does the plan assume? A plan assuming 0% annual increases is not realistic. Look for 3-5% annual escalation.
• Does the plan include an inflation adjustment for replacement costs? Construction cost inflation has historically run 3-5% annually but has been higher recently.
• Is the association actually following the recommended funding plan? Compare the recommended contribution in the study to the actual amount being collected (found in the budget or financial statements). Reviewing HOA meeting minutes can also reveal whether the board has discussed deviating from the plan.

Red Flags and Warning Signs

These should cause you to pause, ask hard questions, or walk away.

Percent funded below 30%. This means the association has saved less than a third of what it should have. Major expenses are coming, and there is no money to pay for them. Special assessments are not just likely — they are almost certain.

The study has not been updated in more than five years. Costs change. Components deteriorate. A stale study is worse than no study because it gives a false sense of security.

Key components are missing from the inventory. If the building has an elevator but the reserve study does not include elevator modernization, someone is either hiding costs or incompetent. Both are bad.

The funding plan shows the reserve balance going negative. This is an explicit acknowledgment that the association will run out of money. The only question is when.

Replacement cost estimates look low. If the study says a full roof replacement on a 50-unit building costs $150,000, that number is almost certainly wrong. Roofing projects on mid-rise condos typically run $300,000 to $1 million or more depending on size and type.

The board is not following the recommended funding plan. A reserve study is only useful if the board actually implements its recommendations. If the study recommends $50,000 per year in contributions and the board is only collecting $30,000, the building is falling further behind every year.

No reserve study exists at all. In some states, this is now illegal. In all cases, it is a serious red flag. An association that has never conducted a reserve study is making financial decisions in the dark.

The study uses “threshold” or “baseline” funding. These strategies are designed to keep reserves from hitting zero, not to keep them healthy. They virtually guarantee underfunding over time.

Practical Examples and Scenarios

Scenario 1: The “Healthy” Building

You are looking at a 40-unit condo built in 2005. The reserve study was updated in 2025 with a site visit. The percent funded is 78%. The component inventory includes 35 items covering roof, siding, windows, elevator, mechanical systems, paving, and common-area finishes. The funding plan recommends $85,000 per year in contributions with 3% annual increases, and the current budget shows the association is collecting $87,000. Replacement cost estimates were updated using 2025 contractor bids.

This is a well-managed building. The reserves are not perfect, but they are healthy. The board is following the plan. You can buy with reasonable confidence that dues will remain stable and special assessments are unlikely in the near term.

Scenario 2: The Hidden Time Bomb

You are looking at a 100-unit high-rise built in 1985. The reserve study was last done in 2019, with no site visit. The percent funded is listed at 52%, but you notice the study does not include the plumbing risers, the parking garage waterproofing membrane, or the exterior curtain wall sealant. The elevator modernization is listed at $200,000, but comparable projects in the area run $400,000-$600,000.

If you add the missing components and adjust the cost estimates, the real percent funded is probably closer to 25-30%. This building is heading for a major special assessment. The $52% figure is a mirage.

Scenario 3: The Post-Surfside Scramble

A Florida condo association completed its first Structural Integrity Reserve Study (SIRS) in 2024 as required by SB 4-D. The study identified $4.2 million in structural and waterproofing needs over the next 10 years. The current reserve balance is $600,000. The board has announced a phase-in plan that will increase monthly dues by 40% over three years and is also considering a $15,000-per-unit special assessment.

This is increasingly common. If you are buying into a building that just completed its first mandated reserve study, expect sticker shock. The numbers are real. The question is whether the board has a credible plan to close the gap.

Questions to Ask

Ask these questions of the HOA board, the management company, or the seller’s agent:

1. Can I see the most recent reserve study, including the full report (not just the executive summary)?
2. When was the study last updated, and did it include a physical site inspection?
3. What is the current percent funded?
4. Is the association following the recommended funding plan? If not, why not?
5. Are there any components that the board knows need attention but are not in the reserve study?
6. Has the board received any bids or proposals for major work in the next two years?
7. Has the association ever taken out a loan to cover reserve shortfalls?
8. Are there any state-mandated reserve study requirements that apply to this building, and is the association in compliance?

Frequently Asked Questions

How often should a reserve study be updated?

Best practice is every three years, with a full study (including site visit) at least every six years. Many states are now mandating specific update schedules. Some associations update annually, which is ideal but not common. At minimum, the study should be refreshed whenever a major project is completed or significant cost changes occur.

What is a "good" percent funded?

The Community Associations Institute considers 70% or above to be strong. Between 50% and 69% is fair but carries moderate risk. Below 50% is weak, and below 30% is critical. Keep in mind that percent funded is a snapshot -- the trend matters as much as the number. A building at 55% and climbing is in better shape than one at 65% and falling.

Can I get a mortgage on a condo with low reserves?

It depends on the lender and the loan type. Fannie Mae and Freddie Mac generally require that at least 10% of the HOA budget be allocated to reserves, though they can make exceptions. FHA and VA loans have their own requirements. A building with critically low reserves may not qualify for conventional financing at all, which also limits your resale pool.

Who pays for the reserve study?

The HOA pays for it out of operating funds or reserves. As an individual owner or buyer, you do not pay for the study directly, but you have the right to review it. If the association refuses to share the reserve study, that itself is a red flag -- and in many states, it violates your legal right to access association financial records.

Does a fully funded reserve guarantee no special assessments?

No. A reserve study is based on estimates, and unexpected events -- a catastrophic storm, sudden equipment failure, or construction cost spikes -- can create needs that exceed even a well-funded reserve. However, a fully funded reserve dramatically reduces the likelihood of special assessments and gives the board more options when surprises occur.

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Important: This article is for educational purposes only and does not constitute legal, financial, or professional advice. Reserve study standards, disclosure requirements, and HOA regulations vary significantly by state, municipality, and individual association. Always check your governing documents — including the CC&Rs, bylaws, and any amendments — to understand the specific rules, obligations, and financial disclosures that apply to your association. Consult with a qualified real estate attorney, CPA, or reserve study professional for guidance specific to your situation.

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