Understanding the Difference in Reserve Projects vs. Capital Improvement Projects
When managing properties, understanding the distinction between a Reserve Project and a Capital Improvement Project is vital for effective budgeting and planning. While both involve financial investments in property assets, their purposes and funding approaches differ significantly.
What is a Reserve Project?
A Reserve Project involves maintaining, repairing, or replacing existing common area components to ensure their functionality and longevity. These projects focus on preserving the property’s value and are funded through Reserve Funds, which are accumulated over time. Common examples include roof replacements, pavement resurfacing, or HVAC system repairs. Reserve Projects are planned based on the Useful Life and Remaining Life of components, as determined by a Reserve Study.
What is a Capital Improvement Project?
Capital Improvement Projects, on the other hand, involve adding new features or upgrading property assets beyond their original condition. These projects are aimed at increasing property value or enhancing functionality and are typically not included in Reserve Studies. Examples include adding a swimming pool, upgrading a clubhouse, or installing solar panels. Since these projects are not maintenance-related, funding often comes from special assessments or outside financing rather than Reserve Funds.
Key Differences
1. Purpose: Reserve Projects focus on upkeep, while Capital Improvements enhance or expand property features.
2. Funding Source: Reserve Projects are funded through pre-planned Reserve Funds; Capital Improvements often require separate funding.
3. Inclusion in Reserve Studies: Reserve Projects are included in Reserve Studies, while Capital Improvements are not.
Why Knowing the Difference Matters
Understanding these distinctions helps property managers and Boards of Directors plan budgets responsibly, ensure compliance with Reserve Study recommendations, and avoid misusing Reserve Funds. A clear separation also ensures that funding plans remain fair, steady, and fiscally responsible.
For a deeper dive into Reserve Projects or to set up a customized Reserve Study, contact us today! Let ROYAL Reserves help you plan for a sustainable future.
