Are you a property owner or looking to buy a property? If you are looking to make an investment into an apartment complex, condo or other managed property then there is an interesting article which you need to read. I recently wrote a full length article for Mintek Mobile Data Solutions about Reserve Studies, what they are, why they are conducted and potential uses for the information.
The same principles written about in the full length version can and should be applied to everyone involved or interested in purchasing investment property (Apartment complexes, condos, even an office building complex).
I am sharing this information for three reasons:
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Knowledge means better bargaining power: Understanding the Reserve Study for a potential managed property investment should be a second nature as asking what the price is.
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Unplanned expenses can ruin you: Buying into a managed property can be extremely risky if a Reserve Study has not been conducted. You do not want to make an investment where your Return on Investment (ROI) can be wiped away by unplanned special assessments to replace or repair common areas.
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Preventive maintenance is a good thing: The concept of preventive maintenance actually applies to almost every business. The question becomes how much cash do you burn through on unplanned repairs/replacement of equipment (Copiers, computers, vehicles etc) when just a little TLC and planning could save you a bundle.
“A reserve study is a budgeting guide which provides a detailed inventory of all the common element components with (usually) 2-30 year useful lives that will need to be repaired or replaced. The reserve study determines the remaining life of each item, the cost to repair or replace it and calculates the annual contribution required to adequately fund each item. If an adequate funding plan is followed, special assessments will be unnecessary.”
Ernest Lahti writing for APRA Newsletter Sept-Oct 2009