Property Management Tips – Maintain The Value of Your Investment With A Reserve Study

Property Management Tips - Maintain The Value of Your Investment With A Reserve Study

Real estate has historically been one the safest long-term investments that a could make. When we think of investments in stocks or in other trading platforms, there is always a risk that it can depreciate and lose money rather than make a profit. If you simply invest in bonds or term deposits, there is no opportunity for windfall profits. However, the right real estate investment has proven to be a great vehicle for value appreciation throughout the years or millions of people throughout North America. Land purchases can be a good option but without structures or buildings, you are missing out on immediate positive cash flow from your investment.  Therefore, the obvious course of action is to look for opportunities to improve the land to build a home, an office building, a school building, a library, a church or even office spaces and for some lots, resorts and spas. This opportunity for improvement is a value-added benefit that can result in huge capital gains over the life of your property ownership. The curious thing with having property structures is that they are normally deemed to depreciate in value over the years. The structures and buildings may be prone to damage, wear and tear and in need of periodic maintenance and repair. Therefore, a Reserve Study is a great option to help keep track of, anticipate and prepare for major property repair and maintenance issues in order to keep the value of your investment from dropping due to neglect and disrepair.

What Is A Reserve Study?

A Reserve Study is a commissioned report on the status of the property, it identifies and categorizes all the components of the properties structures and buildings and provides a forecast of when it is up for repair or for replacement. For example, one of the most likely parts of the property to be affected by the weather and the elements of nature is the roof, thus, the reserve study report provides a timeline of when the roof should be replaced so that its nominal condition will be preserved. Moreover, the report also provides an assessment of the building and its structure and interiors, as to how many years a particular electrical system will be efficient and when it should be inspected and what repairs should be done to it. Most importantly, the reserve study report is able to identify the reserve funding source of the property or business so that costly loans and borrowing could be avoided. In a business point of view, it is important to maintain the excellent condition of the property so that its value will not decrease, but it should also not be done in the expense of external loans and financing as it will only be deducted to the value of the property. Thus, with a reserve study, you will get a detailed report of the current state of the property, a timeline of when and what should be repaired or replaced, a forecast of the costs of each repair or replacement or renovation and the sources of funding that the property can use to sustain the maintenance work on the property, as well as possible sources of reserve funding from the assets of the property.

Why Do You Need A Reserve Study?

Corporations, companies, churches, religious organizations, non-governmental organizations, schools, state governments, and even proprietors and businessmen are not always able to foresee or look ahead into the future of the buildings and properties that they own. More often than not for example, a landlord decides to build a residential apartment to be rented to tenants, he builds a building according to state and legal requirements, and then proceeds to rent it out, not anticipating that after a year or two, the elevator may become damaged, or windows and doors get misaligned, or the building may need repainting, and the landlord is at a loss with how to cope with such issues because these factors had not been figured into his development plans. A school may receive a grant to build a new classroom building, and not be prepared for how much wear and tear it can sustain by being used every day by hundreds or thousands of students, when the organization or institution is not prepared for these eventualities, it will be a fiscal nightmare and proprietors and managers will have to think of ways to come up with the needed resources for the repairs. At the outset, these can be disastrous for the organization or company, borrowing money from banks or other institutions with hefty interest rates to repair an aging building does not have any immediate return of investment. The losses of which has to be augmented by the property itself and will result to devaluation rather than the maintenance or the increase in value of the property. Moreover, the intricacies of creating a Reserve Study Report is best left to the experts, it will often be more cost-effective to hire a firm to do it than attempting to do forecasting on your own.

Look For A Firm That Creates Quality Reserve Study Reports

It takes a certain level of skill and expertise to do a Reserve Study, and most of the time, it is done by a team of inspectors, assessors and accountants, and thus not very few firms exist that can be commissioned to create a full reserve study report. Look for a firm that has had extensive experience and track record, look for one that has varied clientele, as this would mean that they have a pool of experts who can work on your property and you would not have to wait on end for it to be started. Find a firm that has numerous clients and ask for these as references. Look for a firm that has a quality track record for making accurate and effective reserve study reports.


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