It has been said that the best investment any person, group or organization could have is in real estate. This is true at best since real estate is the only property that appreciates in value over the years, a piece of land may double or triple in property value in a couple of years. This also applies to homes, apartments, buildings and any other structure that is standing on a piece of prime land. When you have a real-estate investment property, you can actually sell it at any time and be able to see profits after it. For the business owner and entrepreneur, commercial property can be used for manufacturing, warehousing, operations, office space, or investment.
However, to invest in real-property does not mean you will get rich right away, at times you have to wait for years before the value of the property soars and during that time you need to make sure that your buildings and structures will still be of value to your potential buyers. A piece of land with a decrepit structure will have lesser property value compared to a land with a well-maintained building or any other structure. In order to see profits from your investment which takes years to progress, you also need to make sure that what you put into the property will potentially increase its value and not the other way around. Thus, it is a wise choice to have a full reserve study done on your property.
What is a Reserve Study?
A reserve study is an assessment of the full cost of real property ownership, it is a report prepared by qualified experts on assessing real-property value on a long-term basis. A reserve study, also known as a property appraisal, is composed of three parts, the component list, the reserve fund strength and the funding plan for any of your properties. The component list is a detailed inventory of all the aspects in the property including those in the main structure and any secondary structures such as pools, guest houses, courts, gazebos and even gates and entry ways and then assessing its usefulness and forecasting when it should be replaced or improved and the costs it would entail.
The component list is based from the visual inspection of the property and then researching its market value and based on wear and tear how soon will it need to be replaced or refurbished. For example; depending on the materials used, roofs could have a life of five years until it needs to be replaced or repaired, the component list would then assign the costs that it would take to repair it by giving a projection of how much it would cost in the said year. It takes a lot of researching in order to determine the costs of the repair. Other parts of the house might need to be repaired earlier, in say every year or in the next two or three years.
The reserve fund strength in the reserve study is a report regarding the reserve fund of the organization or the owner of the property, it takes into account the sources of the reserve fund either from business profits, stock investments or the savings of the owner. Either way it assesses the capability of the property owner to be able to fund the needed upkeep and maintenance of the property. The reserve fund strength is categorized as poor, fair and good. If the reserve fund strength is poor, this would mean that the owner do not have enough resources to fund the needed repairs in the coming years, a reserve fund that can only finance thirty percent of the repairs is considered poor.
On the other hand, if the reserve fund can cover seventy to one hundred thirty percent of the maintenance costs, then it is considered good reserve fund strength. In cases when the property needs a repair that cannot be adequately funded by the reserve fund, this would call for the special assessment risk report which identifies the funding sources that the owner can tap into to provide the funds for the needed repairs. This could be in the form of loans and or liquidating assets.
The funding plan provides the forecasts of the health of the finances and resources of the property owner, it is evaluated in terms of the sufficient availability of cash, the flow of finances in the coming years and whether the funds can be allocated equally for all the needed repairs and upkeep and whether the owner is fiscally responsible. This would mean not having any high interest loans or external borrowings that could threaten the reserve fund strength or being able to pay all the necessary taxes and fees.
The reserve study is one of the most important resource that any property owner could have to ensure that their properties are always in top property value and if they need or want to sell it, then it would be sought after since it is in excellent condition, as well as fetching a much higher price than other properties in the market.
How To Get A Reserve Study Done?
There are a few valid and reliable firms that can do a reserve study for you, since this is a complex report it requires a team of experts in the field of accounting, marketing and even architecture and civil engineering. Save yourself time, effort and expense by hiring the best people to do this for you, if you settle for the newer firms who may not have the experience to carry out a reserve study, you might end up with limited information or worse, erroneous information. Also, ask from other property owners any firm they would refer to you, you would know a reputable firm if they get to be mentioned and referred to you by a number of businesses.
You can also do your own research and look into the most popular firms, and find out about their services by signing up and availing of the free reports. If everything is to your liking then you can proceed to schedule a consultation or meeting with them. You can also check which property value reserve study you would want, generally a reserve study can be done in one year and can be updated every year or a two after.