Why reserve funds matter
Your building’s reserve fund is its financial safety net. It’s the money set aside for major repairs, replacements, and unexpected costs, the kind of expenses that can’t be covered by your regular monthly budget.
Think of it as your building’s long-term health plan. Without it, boards often have no choice but to issue a special assessment or take out a loan when big-ticket projects come up. That can mean sudden, costly bills for residents.
A well-funded reserve allows your building to:
- Handle emergencies without panic
- Plan proactive maintenance instead of waiting for things to break
- Preserve property values and make the building more attractive to buyers and lenders
What reserve funds can be used for
Reserve funds typically cover capital expenses, which are large, infrequent projects that add to or extend the life of the building. Examples include:
- Roof replacement
- Elevator modernization
- Façade repairs (Local Law 11)
- Boiler or HVAC replacement
- Major plumbing or electrical upgrades
- Lobby or hallway renovations
They are not meant for everyday operating expenses like cleaning, utilities, or routine maintenance — those come from the operating budget.
In addition to monthly contributions, some buildings collect a capital contribution fee when units change hands to help build reserves.
What’s a healthy reserve fund?
There’s no single number that works for every building, but here’s what matters:
- Size and age of the building — older buildings often have more frequent and costly capital needs
- Upcoming projects — planned upgrades or Local Law compliance work should be factored in
- Reserve study results — a professional reserve study looks 20–30 years ahead to project costs and set funding targets
Tip: Many lenders look for buildings to have at least 10% of their annual budget allocated to reserves. Inadequate reserves can make it harder for buyers to secure financing, which can hurt property values.
Why slightly higher monthly fees can be a good thing
Owners sometimes worry when the board raises maintenance or common charges. But if those increases are being used to strengthen the reserve fund, it’s usually a smart move.
Here’s why:
- It spreads costs evenly over time instead of hitting owners with sudden special assessments
- It enables proactive maintenance, which is almost always cheaper than emergency repairs
- It improves the building’s financial profile, which can attract buyers and better loan terms
If your board decides to raise monthly charges, here’s how to communicate the increase effectively so residents understand the long-term benefits.
How to keep reserves healthy
1. Conduct regular reserve studies
Hire an engineer or reserve specialist to evaluate your building’s systems, forecast future repairs, and recommend funding levels. Aim to update the study every 3–5 years.
2. Make annual contributions a habit
Treat reserve funding like a fixed cost. Build it into your budget and avoid the temptation to skip contributions to offset other expenses.
3. Review and adjust as costs rise
In NYC, inflation in construction, labor, and materials can quickly outpace earlier estimates. Revisit your funding plan annually.
4. Avoid using reserves for operating shortfalls
It may be tempting to dip into reserves to cover everyday costs, but that’s a red flag for both the building’s financial health and potential buyers.
5. Communicate with residents
Let owners know how reserve funds are used and why maintaining healthy reserves benefits everyone. Transparency builds trust and reduces pushback on necessary increases.
Key takeaway
A well-funded reserve is more than just money in the bank. It’s peace of mind for every resident, protection against sudden costs, and a sign of a well-managed building.
Regular contributions, smart planning, and clear communication keep reserves strong, and your building better prepared for whatever comes next. Reserves are just one piece of your building’s financial picture. For a broader view, check out our condo and co-op board financial management guide.
