Reserve Study

know your future. manage your reserves.

What is the definition of of a reserve study?

A capital reserve study consists of an on-site inspection of your property and an in-depth analysis of your capital assets performed in an effort to keep your reserve fund at optimal level. It acts as a planning tool that identifies an amount of funds to be set aside to repair, replace, and restore the common interests of a property or community over time. The resulting report presents a plan that can be utilized by money managers for long range planning, and by property management staff for daily decision making.

Why is a reserve study important?

Capital reserve studies are vital for effective asset planning, enabling organizations and facilities to assess the condition of their assets and plan for necessary maintenance or upgrades that may be needed in the future. Reserved Studies help you, essentially, to be proactive. By providing insights into future capital needs and associated costs, these studies facilitate strategic financial planning and budgeting.

reserve study, defined:

reserve study levels of service

reserve study

know your future. manage your reserves.

we offer two capital reserve study options to fit all client needs.

capital reserve studies help you prepare for the future

Capital Reserve Analysis (CRA)

The Capital Reserve Analysis service is a “value proposition” service that provides management with comprehensive inspection services, and a dynamic process, and the tools necessary to forecast future capital replacement needs of a facility for its remaining useful life.

Powered by zumBrunnen’s proprietary FacilityForecast® software, this easy-to-use capital reserve study solution allows users to drill down or slice and dice data. For example, users can easily vary inflation rates, interest rates, alter report terms in years, filter or combine any number of budgets, cost categories, budget item classifications, set minimum unit cost values, and calculate facility condition indexes.

zumBrunnen construction capital reserve study

Strategic Capital Replacement Budget™ (SCRB™)

The SCRB™ is designed to respond to a Client’s specific reporting need(s) at the lowest possible cost; i.e. to meet a reporting requirement of a bond covenant.

The SCRB is a limited-scope budget report where report parameters are clearly defined (limited) by the client as to the number of years; items critical to maintaining the building envelope, critical systems, and major fixed equipment only; minimum replacement cost of $15,000 to $20,000 per budget item, etc. This capital reserve study solution offers a cost-effective tool to make smart business and building-related decisions.

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“zumBrunnen helped us update our 20-year plan. They saved us time in the collection of data, and Doug McMillan’s knowledge and expertise, as it relates to the industry as a whole, is where we felt zumBrunnen brought the most value.”

William Anna, Dir. of Plant Services (former)
The Cedars of Chapel Hill

reserve study funding plan descriptions:

Current Funding Plan:

The current reserve fund balance, along with the historical or current planned annual reserve contributions, are provided by the Client, reviewed by zumBrunnen, and presented in the following Current Funding Plan reports:

  • Funding Plan Line Chart Example: A line chart of the Current Funding Plan for each year’s current annual contribution, capital expenses, and the reserve balance. This report will identify the possible shortfall of the Client’s current funding model within the specified reporting term.
  • Funding Plan Table Example: This table reports the Current Funding Plan based on projected capital expenses. The object of this report is to determine if this is an effective plan and to identify any years the current plan may be underfunded. The report includes the required fully funded balance, actual reserve balance, percent funded, current plan annual contributions, interest income, capital expenses, and the funding requirement on a per unit per year and per month basis.

The Gist:

This represents the status quo. If you spend according to the recommendations in the 20–year budget, and you make no changes to your planned contribution for the current year, this plan shows your financial position at year-end for the next 30 years.

example of a capital reserve study current funding plan
current funding plan capital reserve study zumbrunnen inc
example of a capital reserve study fully funded funding plan
a fully funded funding plan capital reserve study zumbrunnen inc

Fully Funded Plan:

HUD developed the Fully Funded Plan Component Method in the early 1980s. This plan requires the separate funding accounts for each individual component every year, amortized over the component’s remaining life. For properties other than new properties, the initial years require the accelerated funding based on the remaining life of those components, as well as the amortized balance for each item to be replaced in future years. Any budget shortfall is funded from savings or special assessment.

For those properties more than one year old, a Fully Funded Plan will result in higher initial contributions and a more conservative reserve balance than the Baseline and Threshold Funding Plans presented in Sections 2.08 and 2.09 of this Report.

  • Funding Plan Line Chart Example: A bar chart of the Fully Funded Plan, for each year’s NRSS required annual contribution, capital expenses, and the reserve balance.

  • Funding Plan Table Example: The goal of a Fully Funded plan is to fund 99+% of the accumulated depreciation. The report includes for each year the required NRSS fully funded balance based on depreciation schedules, reserve balance, percent funded, NRSS annual contributions based on remaining life amortization schedules, interest income, Table VII-A capital expenses, and annual contributions calculated on a per unit per year and per month basis.

The Gist:

The goal of a Fully Funded plan is to fund 99+% of the accumulated depreciation. For those properties more than one year old, a Fully Funded Plan will result in higher initial contributions and a more conservative reserve balance than the Baseline and Threshold Funding Plans.

Fully Funded Plan:

HUD developed the Fully Funded Plan Component Method in the early 1980s. This plan requires the separate funding accounts for each individual component every year, amortized over the component’s remaining life. For properties other than new properties, the initial years require the accelerated funding based on the remaining life of those components, as well as the amortized balance for each item to be replaced in future years. Any budget shortfall is funded from savings or special assessment.

For those properties more than one year old, a Fully Funded Plan will result in higher initial contributions and a more conservative reserve balance than the Baseline and Threshold Funding Plans presented in Sections 2.08 and 2.09 of this Report.

  • Funding Plan Line Chart Example: A bar chart of the Fully Funded Plan, for each year’s NRSS required annual contribution, capital expenses, and the reserve balance.

  • Funding Plan Table Example: The goal of a Fully Funded plan is to fund 99+% of the accumulated depreciation. The report includes for each year the required NRSS fully funded balance based on depreciation schedules, reserve balance, percent funded, NRSS annual contributions based on remaining life amortization schedules, interest income, Table VII-A capital expenses, and annual contributions calculated on a per unit per year and per month basis.

The Gist:

The goal of a Fully Funded plan is to fund 99+% of the accumulated depreciation. For those properties more than one year old, a Fully Funded Plan will result in higher initial contributions and a more conservative reserve balance than the Baseline and Threshold Funding Plans.

example of a capital reserve study fully funded funding plan
a fully funded funding plan capital reserve study zumbrunnen inc

Baseline Funding Plan:

The goal of this funding plan is to identify the minimum annual contribution requirements so the reserve balance does not drop below zero dollars during the specified Reserve Term. This is achieved by testing different levels of annual contributions against the anticipated expenses until the annual funding level keeps the reserve balance at zero dollars in critical peak years (years of highest expense) over the specified reserve term.

  • Funding Plan Line Chart Example: A line chart of the Baseline Funding Plan for each year’s required NRSS annual contribution, capital expenses, and the reserve balance.

  • Funding Plan Table Example: This report includes for each year the required NRSS fully funded balance based on depreciation schedules, reserve balance, percent funded, required NRSS annual contributions based on critical year amortization, interest income, capital expenses, and annual contributions calculated on a per unit per year and per month basis.

Please note the following limitation associated with the Baseline Funding Plan method: this plan assures, as a minimum, adequate reserve funds only for the Reserve Term years. After the first critical peak year, annual contribution levels will decline; the exception to this is if there is only one critical year falling on the last year of the specified Reserve Term. Most funding plans will have more than one critical year. In these cases, the Baseline Funding Plan will report reductions to annual contribution level, so the Reserve Fund does not grow beyond the annual contribution necessary to maintain a cash balance at or above zero dollars in these subsequent critical years.

Note that extending the specified Reserve Term may result in increases to any or all of the annual contributions over the specified Report Term. This can occur when another critical year with higher funding requirements occurs in a year beyond the specified Reserve Term.

The Gist:

This shows where you stand if you adjust your annual contribution to a level that causes your reserve fund to stay at or above a $0 balance.

example of a capital reserve study baseline funding plan
a baseline funding plan capital reserve study zumbrunnen inc

Baseline Funding Plan:

The goal of this funding plan is to identify the minimum annual contribution requirements so the reserve balance does not drop below zero dollars during the specified Reserve Term. This is achieved by testing different levels of annual contributions against the anticipated expenses until the annual funding level keeps the reserve balance at zero dollars in critical peak years (years of highest expense) over the specified reserve term.

  • Funding Plan Line Chart Example: A line chart of the Baseline Funding Plan for each year’s required NRSS annual contribution, capital expenses, and the reserve balance.

  • Funding Plan Table Example: This report includes for each year the required NRSS fully funded balance based on depreciation schedules, reserve balance, percent funded, required NRSS annual contributions based on critical year amortization, interest income, capital expenses, and annual contributions calculated on a per unit per year and per month basis.

Please note the following limitation associated with the Baseline Funding Plan method: this plan assures, as a minimum, adequate reserve funds only for the Reserve Term years. After the first critical peak year, annual contribution levels will decline; the exception to this is if there is only one critical year falling on the last year of the specified Reserve Term. Most funding plans will have more than one critical year. In these cases, the Baseline Funding Plan will report reductions to annual contribution level, so the Reserve Fund does not grow beyond the annual contribution necessary to maintain a cash balance at or above zero dollars in these subsequent critical years.

Note that extending the specified Reserve Term may result in increases to any or all of the annual contributions over the specified Report Term. This can occur when another critical year with higher funding requirements occurs in a year beyond the specified Reserve Term.

The Gist:

This shows where you stand if you adjust your annual contribution to a level that causes your reserve fund to stay at or above a $0 balance.

example of a capital reserve study baseline funding plan
a baseline funding plan capital reserve study zumbrunnen inc
example of a capital reserve study threshold funding plan
a threshold funding plan capital reserve study zumbrunnen inc

Threshold Funding Plan:

The Client is advised that all expenses may not have been readily apparent or were missed, and that interpretations, means, and methods beyond the control of the Consultant, or pricing changes or variations, may be encountered, life cycles may vary, etc. These types of costs generally are not accounted for in the Fully Funded or Baseline Funding Plans. Therefore, it is recommended that a contingency (minimum threshold percentage) be added to help assure that critical replacements are not deferred or that the potential for special assessments is minimized. The threshold percentage is a recommendation made by the Consultant based solely on his experience when considering the risk variables associated with this Property.

The Threshold Funding Plan is the Baseline Funding Plan with the minimum reserve balance of zero dollars adjusted up by the threshold amount, including inflation adjustments. The threshold dollar amount is calculated by taking the threshold percentage of the total one-time replacement cost of all capital expenses.

  • Funding Plan Line Chart Example: A bar chart of the Threshold Funding Plan Table for each year required NRSS annual contribution, capital expenses, and the reserve balance.

  • Funding Plan Table Example: This report includes for each year the NRSS required fully funded balance based on depreciation schedules, actual reserve balance, percent funded, required NRSS annual contributions based on the critical year(s) amortization plus the threshold amount, interest income, capital expenses, and annual contributions calculated on a per unit per year and per month basis.

The Gist:

This plan shows the necessary contribution for the current year that causes your reserve fund to stay at or above a minimum balance cushion equal to a pre-set percentage of the one-time replacement cost of every item in the capital budget.

Threshold Funding Plan:

The Client is advised that all expenses may not have been readily apparent or were missed, and that interpretations, means, and methods beyond the control of the Consultant, or pricing changes or variations, may be encountered, life cycles may vary, etc. These types of costs generally are not accounted for in the Fully Funded or Baseline Funding Plans. Therefore, it is recommended that a contingency (minimum threshold percentage) be added to help assure that critical replacements are not deferred or that the potential for special assessments is minimized. The threshold percentage is a recommendation made by the Consultant based solely on his experience when considering the risk variables associated with this Property.

The Threshold Funding Plan is the Baseline Funding Plan with the minimum reserve balance of zero dollars adjusted up by the threshold amount, including inflation adjustments. The threshold dollar amount is calculated by taking the threshold percentage of the total one-time replacement cost of all capital expenses.

  • Funding Plan Line Chart Example: A bar chart of the Threshold Funding Plan Table for each year required NRSS annual contribution, capital expenses, and the reserve balance.

  • Funding Plan Table Example: This report includes for each year the NRSS required fully funded balance based on depreciation schedules, actual reserve balance, percent funded, required NRSS annual contributions based on the critical year(s) amortization plus the threshold amount, interest income, capital expenses, and annual contributions calculated on a per unit per year and per month basis.

The Gist:

This plan shows the necessary contribution for the current year that causes your reserve fund to stay at or above a minimum balance cushion equal to a pre-set percentage of the one-time replacement cost of every item in the capital budget.

example of a capital reserve study threshold funding plan
a threshold funding plan capital reserve study zumbrunnen inc

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“zumBrunnen provides great value to its clients – knowledge, expertise, client service, willingness to work together, all at a reasonable price. They can speak both the construction language and the finance language – which is an invaluable asset!”

Kenda Laughey, CFO
Southminster

capital reserve study best practices.

Identify Your Immediate & Long-Term Needs

The best practice in executing a Capital Reserve Study is to first identify immediate and long-term needs by commissioning a comprehensive facility assessment of all fixed and movable assets (an assessment). Although not a mandate of NRSS, Capital Reserve Studies should be performed by an independent consultant in accordance with the American Society for Testing and Materials (ASTM) e2018-2008 Standard Guide for Property Condition Assessments.

One of our experienced consultants will identify critical repairs, deficient and poorly executed construction details, and not only include them in the budgets but also provide various options to complete or correct. Additionally, recommendations for improvements will be provided to improve marketability, safety, and efficiencies.

Ensure Your Data is Accurate

The subsequent budgets and funding plans of a Capital Reserve Study are entirely founded on the assessment data. Unfortunately, many Capital Reserve Study service companies elect to utilize junior staff members to conduct the field inspection/assessment, which is then reviewed in the corporate office by the more experienced staff member. This is a cost-saving technique for the service company that may result in substandard results for the client.

The quality of a Capital Reserve Study correlates directly to “experience-experience-experience.” To get the most accurate data, we ensure the consultant conducting the field assessment has years of relevant field experience in construction, inspection, and assessment. We use engineers with a minimum of 20 years of directly related experience. Due to time and budget constraints, the consultant typically has just one opportunity to spot and recognize a problem. They will rely on their years of training, experience, and intuition, to know what areas of a building and systems to focus on, and most importantly, what exactly to look for to help you protects your project and investors. 

tip #1

capital reserve study best practice #1

Community associations should conduct regular reserve studies to assist community leaders in determining the appropriate amount of reserves needed to fund replacement costs and the most useful funding mechanism for their reserves.

tip #2

capital reserve study best practice #2

The most critical decision in conducting a reserve study is selecting the components. This requires analysis of the association’s governing documents, application of the National Reserve Study Standards four-part test, and applicable state statutes and civil codes.

tip #3

capital reserve study best practice #3

We recommend all associations (that have reserve components) have their reserve studies updated on a frequency that allows for the reserve components and funding plan to be adjusted in the best interests of the association or accordance with local statutes.

tip #4

capital reserve study best practice #4

The Association should work with their service providers, contractors, and Reserve Specialist to adapt the reserve study components to utilize innovation and technology. It can be very beneficial to evaluate not only the cost of replacement but also the cost of energy usage.

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reserve study key terms, defined

Reserve Funds

Money set aside to meet the financial obligations of capital asset replacement.

Physical Analysis

The first step of a reserve study is the physical evaluation of the condition of common elements and limited common elements and establishment of replacement cost and remaining useful life.

Financial Analysis

The second step of a reserve study combines spending recommendations generated by step 1 with certain financial assumptions specific to the property in order to produce a series of funding models.