HOA Reserves Rule of Thumb: How Much to Keep

Short Answer

When board members ask, “How much should our HOA have in reserves?”, they usually want a simple, numeric rule of thumb. In general, many professionals consider an HOA to be in a healthy range when its reserve fund is somewhere around 70–100% funded compared to what a current reserve study says it should have at that point in time. Below that range, the risk of special assessments and deferred maintenance rises.

Another way people think about reserves is as a portion of the annual budget. Many communities set aside a meaningful share of their yearly assessments into the reserve fund rather than spending everything on day-to-day operating costs. The exact percentage depends on your buildings, amenities, and long-term repair schedule.

These rules of thumb are useful for a quick gut check, but they are not precise targets or legal requirements. The only way to know what “enough” looks like for your specific community is to base your planning on a professional reserve study and an updated long-term funding plan. The rest of this article breaks down how to do that in a practical, board-friendly way.

What Are HOA Reserves and Why Do They Matter?

Your HOA’s reserve fund is the money set aside for major future repairs and replacements. This is the account that will pay for big projects like roof replacements, asphalt milling and overlay, repainting buildings, replacing pool equipment, or resurfacing tennis courts. These expenses don’t happen every year, but when they do, they are substantial.

This is different from the operating fund, which covers recurring, day-to-day expenses such as landscaping, utilities, insurance, management fees, basic maintenance, and administrative costs. Operating expenses keep the community running month to month. Reserve expenses protect the long-term condition and value of the property.

Healthy reserves matter because they:

• Reduce the likelihood of sudden special assessments that create financial stress for owners.
• Help maintain curb appeal and property values by making sure major components are repaired or replaced on time.
• Make the community’s finances more predictable and transparent, which owners and potential buyers appreciate.
• Support lender confidence; some lenders look closely at reserve health when underwriting loans in association communities.

Professionally prepared reserve studies and commonly accepted reserve study standards are designed to help boards answer the question, “What do we own, when will it wear out, and how will we pay for it?” Reserves are the funding side of that answer.

HOA Reserves Rule of Thumb: Two Common Ways People Think About It

When you hear the phrase “HOA reserves rule of thumb,” it usually refers to one of two concepts:

1. How fully funded your reserves are compared to a professional target.
2. How much of your annual budget you contribute to reserves.

Both are useful, but only when they are tied back to a current reserve study.

Rule of Thumb #1 – Percent Funded (70–100% as a Healthy Range)

Percent funded compares:

• What your reserve study says you should have set aside by now (the fully funded balance), and
• What you actually have in the reserve account.

If your fully funded balance for this year is, for example, $500,000, and your actual reserve balance is $400,000, then you are 80% funded. That doesn’t mean you are in trouble or perfectly safe by itself, but it does give a quick snapshot of risk.

Boards and professionals often use general ranges like:

• Very low (heavily underfunded): reserve balance far below the study’s target.
• Moderate: reserve balance somewhere in the middle.
• Strong: reserve balance close to or at the fully funded level.

In broad terms, many communities aim to be in a “healthy” band somewhere around 70–100% funded. Below that, the margin for error shrinks and the risk of future special assessments increases. Above that, the community may have more flexibility in dealing with unexpected cost spikes or earlier-than-expected failures.

These ranges are guidelines, not laws. A 70% funded community with mostly new infrastructure is in a very different position than a 70% funded community with aging roofs, balconies, and parking structures. Percent funded is one important signal, not the only decision factor.

Rule of Thumb #2 – Percentage of Budget Going to Reserves

The second way boards think about reserves is:

“What percentage of our dues should go into reserves each year?”

Instead of asking “How big should the reserve balance be?”, this lens asks, “How big should our annual reserve contribution be?” In practice, many associations dedicate a meaningful portion of their annual assessments to reserves rather than spending almost everything on operating costs.

The actual percentage varies widely. A small townhome community with few amenities and newer roofs will need a lower contribution than a large master-planned community with multiple pools, clubhouses, lifts, and extensive paving. Over time, that contribution should be calibrated by your reserve study, not by guesswork.

The key point is that “We put something into reserves” is not specific enough. Boards should know, at least roughly, whether their annual contribution is in line with what their reserve professional recommends and whether it keeps the community on track toward the target funding level.

How Much Should Our HOA Have in Reserves? A Practical Step-by-Step Approach

Rules of thumb are useful for context, but your board ultimately needs to answer a more pointed question:

‍“Given our community, how much should we actually have in reserves right now, and how much should we be contributing each year?”

Here is a practical way to approach that.

Step 1 – Start With Your Reserve Study (or Get One Done)

A current reserve study is the foundation of any meaningful answer. The study will:

• Inventory your major common elements (roofs, paving, mechanical systems, amenities, etc.).
• Estimate their remaining useful life and replacement cost.
• Project when those costs will hit over the next 20–30 years.
• Provide recommended reserve contributions and target balances.

If your reserve study is outdated or you have never had one, any rule of thumb is basically a guess. The first step is to commission or update a professional study so your numbers are tied to the actual physical condition of the property.

Step 2 – Check Your Percent Funded Against the Rule of Thumb

Once you have a study, look for the percent funded metric. Many reserve reports clearly show this number.

• Compare your percent funded to the broad ranges discussed earlier.
• If you are substantially below what your professional recommends, that is a signal that your current path likely leads to future special assessments or deferred projects.
• If you are near or above the recommended range, you are in a stronger position, assuming the study itself is current and realistic.

This single metric won’t tell the whole story, but it is an efficient way for busy board members to understand where the community stands relative to a “healthy” funding band.

Step 3 – Check How Much of Your Budget Goes to Reserves

Next, look at your annual budget:

• How many dollars are you contributing to reserves this year?
• What percentage of total assessments does that represent?

Then compare those numbers to the funding plan in the reserve study:

• Are you consistently contributing the recommended amount?
• If you are under-contributing, is there a documented plan to catch up over time?
• If you are over-contributing, does that align with your community’s risk tolerance and upcoming projects?

This is where the “percentage of dues to reserves” rule of thumb becomes useful: it helps you see whether your current habits match what your long-term repair schedule actually requires.

Step 4 – Layer in Age, Amenities, Climate, and Risk Tolerance

Finally, step back and consider context:

• How old are your buildings and major systems?
• Are you largely through a big wave of replacements, or approaching one?
• Do you have high-risk components (elevators, structured parking, balconies, retaining walls)?
• Is your community in a harsh climate or coastal area where components wear faster?
• Are there state-level requirements or lender expectations you need to account for?

Two communities can both be 70% funded and contributing a similar share of their budget to reserves, but face completely different risk profiles based on these factors. This is where board judgment, input from your reserve professional, and, where necessary, legal counsel all come together.

Underfunded vs Healthy HOA Reserves: What It Looks Like in Practice

Boards often hear “underfunded” and “healthy” reserves discussed in abstract terms. It helps to translate those labels into real-world situations.

An HOA is generally considered underfunded when its reserve balance is significantly below what the reserve study indicates is needed at this point in time, given the components and projects coming up. That gap usually shows up later as:

• Special assessments when big projects can’t be delayed any longer.
• Deferred maintenance, which can snowball into more expensive repairs.
• Tension within the community as owners push back on large, unexpected bills.

By contrast, a healthy reserve position doesn’t mean the community is over-saving or will never face a surprise. It means:

• The reserve balance is reasonably close to the target levels in the study.
• The annual contribution is aligned with the funding plan.
• The board has enough flexibility to schedule projects on time instead of always “kicking the can.”

Here are simple scenarios to illustrate:

• A community at around 25% funded with roofs, siding, and pavement all near the end of their life is in a high-risk position. Without changes, special assessments are very likely.
• A community at around 60% funded with a mix of older and newer components is in a moderate position. With clear planning and gradual assessment increases, it may be possible to catch up.
• A community at around 90% funded with mostly mid-life systems and a current reserve study is in a relatively strong position; the focus is staying disciplined rather than scrambling.

You can summarize this concept for owners using a simple table in your budget communications:

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These ranges are illustrative only. Your reserve professional may use slightly different thresholds based on your community and adopted standards.

Operating vs Reserve Funds: A Simple Comparison Chart

Because reserves and operating funds live side by side in the budget, it is easy for owners to confuse them. That confusion causes friction when boards try to increase reserve contributions (“Why are you taking money from services?”) or when owners see a healthy reserve balance but hear about a special assessment.

In reality, operating and reserve funds serve different purposes and are not interchangeable.

A simple comparison can help:

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Using reserve funds to plug operating shortfalls is generally a red flag and may be limited by your governing documents or state law. Boards should budget operating and reserves separately, even if they discuss both in the same owner meetings.

Best Practices for Building and Tracking Healthy HOA Reserves

Once you understand where you stand, the next question is:

“How do we move toward healthier reserves and stay there?”

There are a few proven practices that make a real difference.

Keep Your Reserve Study Current

Reserve studies are not “one and done.” They should be updated regularly:

• To reflect projects that have been completed.
• To update costs based on inflation and market changes.
• To adjust remaining useful lives based on actual wear and inspection findings.

Many communities refresh the study or at least update key assumptions every few years, or as required by their state or governing documents.

Adopt a Clear Reserve Funding Policy

Instead of deciding funding levels year by year, boards should adopt a reserve funding policy that describes:

• The target funding range (for example, aiming to stay within a certain percent funded band over time).
• The general approach to annual contributions (for example, gradually increasing contributions instead of making large jumps).
• How the board will respond if reserves fall below a certain level.

This policy helps drive consistent decisions and makes budget conversations with owners more predictable.

Separate Accounts and Transparent Reporting

Healthy reserves are easier to maintain when they are:

• Kept in a separate account or clearly separated in the books.
• Shown clearly in budget packages and annual financial statements.
• Discussed openly in annual meetings with simple graphs or tables.

Owners are more willing to support appropriate reserve contributions when they can see where the money is going and how it protects the community.

Use Tools Instead of Static Spreadsheets

Tracking reserves in a static spreadsheet can work for a small, simple community, but it often breaks down when:

• There are many components and projects.
• The board wants to test “what if” scenarios.
• Managers oversee multiple associations.

Modern reserve study software can help boards and managers:

• See the impact of different funding levels over time.
• Track actual contributions and project costs against the plan.
• Visualize percent funded and upcoming expenditures in dashboards rather than dense tables.

Tools like PropFusion are built specifically to turn reserve study numbers into clear funding plans, charts, and reports that are easier for non-technical board members to understand.

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