Reserve Funds

If you buy a condo, you will pay a condo fee. The condo fee is usually a monthly fee that pays for common expenses such as certain utilities, maintenance and upkeep. Your community’s condo board will allocate resources from the budget to pay for the expenses that will arise. In addition, they will set a certain portion of that money aside in a “reserve fund”.

The reserve funds are moneys set aside for long term expenses and emergencies. Reserve funds are designed avoid the dreaded “special assessment” that poorly managed condo might incur. A perfect example of an item that might be paid for through the reserve funds is the roof.

Although a good roof can last thirty years or more, sooner or later the roof will go bad. Rather than having a “special assessment” to pay for a big expense like this, each year the condo association puts money in reserves to save up for the roof. In this way, when the roof is ready to be replaced, the money to pay for the roof is in “reserve funds”.

Thus, all buildings (old or new) need a reserve fund and need space in the budget for a reserve fund. The amount that is needed in the reserve fund will vary from condo to condo depending how old or new the building is. A low reserve fund is not necessarily a sign that an association is financially shaky.

For example a brand new condo might not have much in the way of reserves. Or a condo that just completed major repairs may have spent their reserves wisely. Still, it is important to inquire about the reserves of a given condominium association when you are buying a condo.