Reserve Funds


2020 taught us all of the importance of having savings for a rainy day. Every homeowner should have a reserve fund set aside for expected home maintenance. While this fund may not necessarily require a separate account, it is something that is always wisest to account for.
Yes, every home needs ongoing maintenance and repairs. This is the one thing all homes have in common. These are the types of things to be budgeted for:
1.  Daily/weekly/annual known maintenance items such as mechanical service contracts, yard, and pool maintenance, window washing, etc. These should be part of a regular operating budget. In condo's, most of these expenses - not all - are covered by monthly common charges.
2.  Longer-term maintenance. Every property has certain elements that have an expected shelf life. No paint-job, dishwasher or AC unit lasts forever. Well-run buildings and homes have these items clearly identified with budgeting for future replacement and repair costs.
3.  Major items: Siding, windows, roofs, and several other structural items will also require major repairs and replacement over time. Budgeting for this is wise too.
4.  The unknown repairs. Insurance policies can cover only so much and then there are deductibles too. Insurance policies require annual re-evaluation. It is wise to fully evaluate ALL potential risks your home may be exposed to and at least be aware of them....and check what your insurance does or does not cover. (PS: look out for flooding!)
In shared home scenarios like a condo, reserve funds cover only so much. A healthy reserve fund for emergencies is always prudent. It is often smart to evaluate the wealth factor of owners in a building to determine whether urgent assessments for capital improvements will be easily funded or not. Large reserve funds sitting around doing nothing deplete in value in inflationary times. Sometimes buildings have owners who simply do not have the means to write big checks and gathering the funds to do necessary work can take months of planning and negotiating to implement: those buildings are better served by consistently building up reserve funds. 
There is some good news in all the bigger costs associated with improving a building: most are capital improvements that you can add to the cost basis of your home, thereby reducing the capital gains - and taxes - upon resale.

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