Reserve Funds

Many HUD grants, mortgages, or insured funds carry a requirement that a reserve fund be established to defray future replacement costs. The building owner makes monthly contributions to the reserve fund to offset the replacement of equipment, major appliances, and other major repairs/replacements such as roofs, sewer lines, and plumbing fixtures. Minor repairs, such as interior painting, are usually not eligible for use of these funds. HUD will usually maintain control over the fund and issue approvals for withdrawal on a case-by-case basis. HUD will also make recommendations regarding the amount of monthly contribution based on the age, condition, size, and location of the building.

If you have received funding from HUD or another government agency to initiate a project, inquire about any requirements for and regulations regarding reserve funds. Even if an agency does not require that you set up a reserve fund, setting up your own fund to help cover future replacements, anticipated or not, would be an important thing to do. The reserve fund provides at least a partial safety net to respond quickly to building needs.