Definition
A capital reserve is money set aside to pay for the eventual repair or replacement of major common-area components rather than for day-to-day operating expenses.
Why It Matters Financially
The adequacy of capital reserves shapes both borrowing needs and lender confidence. A shortfall in capital reserves is frequently what makes a loan necessary when a large project comes due.
Example Use Case
An association discovers its capital reserve covers only part of a needed roof replacement and finances the remainder.
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Related Terms
Reserve Fund, Association Reserves, Reserve Study, Percent Funded, Capital Improvement