As HOA board members, we wear many hats. We’re mediators, event planners, and rule interpreters. But our most critical role, the one that protects the financial health and physical integrity of our entire community, is that of a financial steward. The cornerstone of this duty isn’t the operating budget — it’s the management of the HOA Reserve Funds.

We’ve seen communities in Texas and Colorado grapple with this. A board thinks they’re in the clear, and then a 20-year-old roof fails, a retaining wall collapses, or the main road needs a complete repaving. The price tag is staggering. Suddenly, the community is thrown into chaos, facing massive special assessments and angry residents.

This entire crisis is avoidable. It’s why we, as an HOA property management company, are so passionate about this topic. Proper reserve fund management is the difference between a community that thrives for decades and one that faces one financial crisis after another.

In this post, we’re not just going to tell you what Reserve Funds are. We’re going to walk you through why they are the single most important financial tool you have, the best practices to manage them, the common pitfalls to avoid, and how professional support can safeguard your community’s future.

What Are HOA Reserve Funds?

Let’s start with the basics. Your HOA has two main “bank accounts.”

The Operating Fund: This is your community’s checking account. It pays for the “knowns” and “predictables” — the recurring, day-to-day expenses. Think landscaping, pool cleaning, utilities for the clubhouse, insurance, and your HOA property management fees. This fund is replenished every year by the regular assessments (dues) homeowners pay.

The Reserve Fund: This is your community’s long-term savings account. It is specifically set aside for the “infrequent but inevitable” major repairs, replacements, and maintenance of the community’s shared assets.

Think of it this way: The operating fund pays to put gas in the community’s car. The reserve fund pays to replace the engine and transmission.

These assets, or “components,” are the big-ticket items the HOA is legally obligated to maintain. This includes:

HOA Reserve Funds are not a “slush fund” for pet projects or to cover an operating budget shortfall. They are a calculated, long-term financial plan to protect the community’s assets and, by extension, every homeowner’s property value.

Why Reserve Fund Management Matters

We sometimes hear from new board members, “Why not just keep dues low and pass a special assessment when we need to fix something?” This is frankly one of the most dangerous financial philosophies an HOA can adopt.

Here’s why proactive management of your Reserve Funds is non-negotiable.

It Prevents Financial Crisis and Special Assessments

Imagine your community needs to replace all its roofs for $1.5 million. If you have that money saved, the project is a planned event. If you don’t, you must pass a special assessment. For a 150-unit community, that’s an immediate, unexpected bill of $10,000 for every single homeowner.

This can be financially devastating. It can force residents to sell their homes or go into debt. It creates anger, distrust, and legal battles. A healthy reserve fund is the number one defense against this exact scenario.

It Fulfills Your Fiduciary Duty

As a board member, you have a fiduciary duty to act in the best interest of the association. This duty explicitly includes protecting and maintaining the community’s assets. Willfully underfunding reserves or failing to have a plan is a direct breach of that duty.

In recent years, courts have increasingly sided with homeowners in lawsuits against boards for failing to maintain adequate reserves. It’s a serious legal liability.

It Stabilizes Homeowner Dues

When you have a long-term funding plan, you can make small, incremental increases to your regular assessments to meet your reserve goals. This is predictable and manageable for homeowners.

The alternative is a roller coaster. A board will keep dues artificially low for years, and then, facing a crisis, hike them by 30% or 40% all at once, in addition to a special assessment. This creates panic and erodes trust.

It Protects and Enhances Property Values

When you’re selling your home, the buyer’s lender will conduct a thorough review of the HOA’s financials. If they see an underfunded reserve or a 0% funded level, they know a massive special assessment is coming. They may deny the loan outright, making it incredibly difficult for anyone to sell their home.

A well-funded reserve, on the other hand, is a major selling point. It shows buyers that the community is financially stable, well-managed, and that their investment is protected.

Best Practices for Managing Your Reserve Funds

Effective reserve management isn’t a secret; it’s a discipline. It boils down to a few key practices that your board should implement immediately.

1. Commission a Professional Reserve Study

This is the most important step. You cannot guess how much you need to save. A reserve study is a formal, in-depth audit conducted by a specialized engineer or credentialed professional. It has two main parts:

This study is your roadmap. It takes the emotion and guesswork out of budgeting and gives you a data-driven, defensible plan.

2. Understand Your State’s Reserve Fund Requirements for an HOA

The legal landscape for Reserve Fund Requirements for an HOA varies. As a company managing properties in both Texas and Colorado, we navigate two different environments:

Texas: State law does not currently mandate that HOAs have a reserve fund or conduct a reserve study. However, your community’s own governing documents (like the CC&Rs or Bylaws) might require it. Even if they don’t, it is the absolute “best practice” and a core part of your fiduciary duty to do so.

Colorado: The laws are more stringent. The Colorado Common Interest Ownership Act (CCIOA) has specific requirements for HOAs regarding their funds. Boards are required to have a policy for the investment of reserve funds and must disclose the details of their reserve fund, including whether a study has been done, as part of the annual budget. For many communities, a formal reserve study is a mandatory requirement, not an option.

3. Maintain Separate, Secure Bank Accounts

This is a rookie mistake with huge consequences. You must never commingle your operating funds and your reserve funds in the same bank account.

Your HOA Reserve Funds should be in a separate, dedicated bank account—ideally an interest-bearing account like a high-yield savings, money market, or a CD ladder. This account should require two board signatures for any withdrawal. This creates a firewall that prevents the board from “borrowing” from reserves to pay for operating expenses, which is a major financial pitfall.

4. Integrate the Study into the Annual Budget

Your reserve study isn’t meant to sit on a shelf. It is a core part of your annual budget. That funding plan we mentioned? It should become a line item in your operating budget.

Each month, just like you pay the landscaping bill, your HOA should “pay” the reserve fund. The contribution from the operating budget (funded by homeowner dues) should be automatically transferred into the separate reserve account. This makes saving systematic and non-negotiable.

5. Communicate and Be Transparent

Secrecy is the enemy of community trust. Your homeowners deserve to know the plan. Share the results of the reserve study at the annual meeting. Explain the funding plan.

When homeowners see that the board has a professional, long-term plan to protect their property, they are far more likely to understand and support the necessary contributions. Transparency turns “Why are my dues going up?” into “Thank you for protecting my investment.”

Common Mistakes To Avoid

We’ve been called in to help communities in financial distress. Almost always, the crisis stems from one of these common and completely avoidable mistakes.

Never Conducting a Reserve Study: This is “flying blind.” You are essentially guessing, and you will almost certainly guess wrong.
Underfunding or Ignoring the Study: Getting the study but then ignoring its recommendations is just as bad. Boards often do this to avoid the political pain of raising dues, kicking the can down the road for a future board to deal with.
Commingling Funds: As mentioned, putting all the money in one “pot” makes it far too easy to use long-term savings for short-term needs. When the pool pump breaks, the board “borrows” from the reserves, and that money is almost never paid back.
Using Reserves for “New” Projects: Reserves are for repair and replacement, not new capital improvements. If the community wants a new pickleball court or a dog park, that is a separate project that should be funded by a special assessment (approved by the community) or a separate capital improvement fund, not by draining the roofing fund.
Risky or Improper Investments: An HOA’s investment priority for its reserves is Safety > Liquidity > Yield. The money must be safe (e.g., in FDIC-insured accounts) and accessible (liquid) when you need it. Chasing high-risk, high-yield returns in the stock market with your community’s roof money is a breach of fiduciary duty.

How a Professional HOA Property Management Company Like Goodwin Can Help

All of this can feel overwhelming, especially for a volunteer board. This is one of the most significant values a professional HOA property management partner brings to the table.

We don’t just collect dues and answer phone calls. We are financial partners who help you execute this strategy flawlessly.

We Facilitate the Reserve Study: We have a network of credentialed reserve specialists. We manage the bidding process, coordinate the site visit, and help the board understand the final report.

We Implement the Funding Plan: We do the “boring but critical” work. We set up the separate bank accounts, we build the reserve contribution into the budget, and we execute the automatic monthly transfers.

We Provide Financial Reporting: Our systems provide the board with crystal-clear, transparent financial statements every month. You can see, in real-time, the health of your operating fund and your reserve fund. There is no guessing.

We Manage the Projects: When it’s finally time to use the Reserve Funds to replace the roof, we manage the entire process. We write the request for proposals (RFPs), source qualified and insured vendors, analyze the bids, and oversee the project from start to finish.

We Provide Continuity and Guidance: Board members change, but the financial plan must remain. As your HOA property management company, we are the constant. We onboard new board members, educate them on the reserve study, and keep the community on track with its long-term financial goals, year after year.

Managing your HOA Reserve Funds is the ultimate act of leadership. It’s not the most glamorous part of being on the board, but it is, without question, the most important.

It is the commitment to ensuring that the promises made to every homeowner — of a safe, well-maintained, and financially secure community — are kept. By commissioning a professional study, funding the plan, and communicating transparently, you are not just saving for a rainy day. You are building a sustainable, thriving, and resilient community for decades to come.

A healthy reserve fund is your community’s best defense against the unexpected. If you are a board member in Texas or Colorado and feeling uncertain about your community’s financial future, let’s talk.

Contact Goodwin & Co. today for a consultation. We can help you assess the health of your HOA Reserve Funds, get a reserve study started, and build a long-term plan that protects every homeowner in your community.