Each year, the HOA board of directors has a community budget that includes the total fees for the current year. Depending on how the year goes, sometimes those expenses can increase unexpectedly, and thus collects fees from its members for various expenses and repairs. Each year, the board of directors has to do a reserve study, a prediction of sorts that assess how much needs to be repaired and at what cost.
How do HOA Fees work?
Homeowner members pay their fees, which goes into the reserve, and thus that reserve gets used for long-term repairs. This avoids special assessments, ones which cost members extra money when the HOA board doesn’t have the funds. Usually, however, the HOA gets drained of resources, thus causes those special assessments to occur. Special assessments usually happen when homeowner members protest increased fees. If you’re a member of the board of directors, one of your responsibilities is to help manage the HOA budget and keep your community running. Understanding how budgets work and what resources you can use can be a valuable skill to have.
How To Handle An HOA Budget
One of the best ways to begin your start is to have a plan. By observing what you have in place first, you can go from there, discussing with your members on how to move forward. Here are 6 steps on how to proceed with creating a budget and explaining it to your community.
Step 1: Review past budgets, income, and expenses. By looking back on previous budgets and the numbers for incomes and expenses, you can stop bad habits that happen in your community and determine a new budget for the upcoming year.
Step 2: Assess vendor contracts and ask for expected cost increases. Lower costs by calling vendors, asking about their current prices, see if they plan to increase those prices, and review your current contracts. From there, you can adjust your budget to amend to those companies or let other companies bid so that way you can save money.
Step 3: Fund your reserves. If you don’t have a reserve in place for your budget, it is best to create one. By creating a reserve, you and your board members will be able to determine which repair or replacement projects are most urgent and also help cover future expenses.
Step 4: Determine upcoming projects. Once you establish your reserve study, you’ll be able to determine which projects are most urgent and most important. Anything unsafe will be on top of the list and from there, if the reserve cannot cover it, you’ll either have to increase monthly fees or create a special assessment.
Step 5: Budget for “hidden” expenses. If you want to escape those hidden insurance fees or emergency damages, your budget should also account for these. Keep the unexpected in mind when creating a budget.
Step 6: Set monthly dues for homeowners. Once you create the budget, it’s time to account for monthly fees. Thee calculations will show the annual income needed from homeowner dues or other sources. From there create a monthly fee and work with your advisors on how to best average a monthly fee that everyone in the community can agree with or work with.
When you first start creating your budget and monthly fees, it can be tough, especially if you’re new to the board, or if you’re coming into the annual meeting with a small budget. No worries, however. Over time you will get better, and through continuous work and observation, you’ll be able to increase your budget and make life easier for everyone in the community.
How to Increase Your Budget
Once you learn about the resources and what you have, you can easily make progress towards a larger budget by learning about what resources you have. By working with your current budget, you can easily make improvements to that budget overtimes as the years’ progress. Here are 8 ways you can increase the budget you have and create a profit to help your community:
1. Use your natural environment to your advantage – If you have a community that has areas such as hills, rivers, or lakes, consider these natural areas as a way to utilize that space to make money. Create a community garden. Use the river or lake for rafting or fishing. Use the hill for community sledding during the winter, or make it a dog park or a picnic area for community members. By creating new amenities, you can create revenue off of it.
2. Bring in Outside Vendors – By bringing in outside vendors, you can add to your community’s experience and add money to your budget. Vendors such as wellness instructors, financial planners, healthcare providers, and insurance companies usually pay fees to use the facility areas. Companies that help sponsor activities will also be able to pay for access to your community. One way to bring in new vendors is by hosting a vendor fair, which companies can pay to be there and your residents can learn about new opportunities through these companies.
3. Make use of unused community spaces – If your buildings have an unused basement, or are just empty in general, you can turn those spaces in guest parking areas, storage lockers, or use them as places to teach classes. By transforming those buildings you can create income and make your community much happier.
4. Rent out unused spaces for events – Alongside transforming new spaces, if you see a space that isn’t used all that much, allow people inside or even outside the community to rent the spaces. Clubhouses, kitchens, boardrooms, and other meeting rooms are all facilities that all have the potential for income when rented out.
5. Implement amenity fees– If you don’t already do so, consider charging a monthly or yearly amenities fee in addition to the standard HOA fee. You can consider fees for extra storage space, additional reserved parking spaces, reserved lockers at the pool and gym facilities, bike storage, or even garden plots. This can help generate enough income to justify upgrades and enhancements of the amenities that the community has.
6. Advertise in Your Newsletter – Although minor, a monthly newsletter can be a great way to bring in a little extra money each month. Reach out to local businesses and offer the space to them for advertisement. While it might not produce tons of money, it can help create money and a good customer base.
7. Revenue Generating Activities – Have the clubs and committees host events such as movie nights, pool parties, picnics, and baking contests. It creates money and creates fun. As long as you do your checks and balances right, you’ll be able to make a little extra off of it.
8. Go green – Recycling and helping others reuse their items can help with the trash pickup and save paper. It’ll also be better for the community. You can even invest in solar panel electricity in your community homes and see how that impacts the community as a whole.
Being a part of the board of directors is considered a huge responsibility. While addressing each of the annual problems that occur in the community, much of your job will consist of balancing checkbooks and managing money. If you understand how your contracts work, you’ll be able to help your members and your community make better decisions and create more money.
So what can you do? Find out what your current financial situation is like in your community. What amenities aren’t being used? How much of your resources are being used? What do your contracts look like with outside companies? Ask questions like these at your next meeting. From there, you can make suggestions and observations to help your community run better.