A homeowners association (HOA) consists of a group of people that oversee the management of a community, such as a condo or residential neighborhood. Starting an HOA in a new community may seem intimidating at first, but any community developer can do it without much difficulty.
Homeowners associations can vary widely in size and function, but they all manage the properties and communities in the same way. When you create one, you’re opening the lines of communication between neighbors and encouraging involvement in your neighborhood.
Below are the top eight tips for setting up an HOA in your new community.
Top 8 Tips For Starting an HOA in a New Community
1. Generate Interest in an HOA and Create a Team
Firstly, you’ll want to test the waters by gauging interest in an HOA. If you’re excited about forming an HOA in your community, the first step is to talk to other people who live in your neighborhood.
Tell them about your idea of starting an HOA and ask if they would like to help. You may be surprised how many people would like to get involved and how valuable their input is for setting up an HOA.
Once you’ve established who is interested, select the best individuals willing to dedicate their time to contribute to the initial setup process. Creating a group of prospects to talk about community improvement projects or safety issues can be easier than you think!
Try to pick skilled candidates when electing board members. Once you have a good group of people, you’ll need to meet with the other homeowners in the area so you can agree on a few general principles and discuss some suggested rules.
2. Familiarize Yourself with Procedures & Laws
You’ll need to familiarize yourself with all the legal requirements, including procedures and laws for forming an HOA in your community. Do whatever research is necessary or partner with an expert familiar with the various rules surrounding HOA communities.
It’s essential to understand what legal steps you’ll need to take to run an HOA successfully. It would be best if you were educated on the local laws concerning homeowners associations before starting an HOA.
In addition to local and state laws, you should also be familiar with regulations and procedures. By researching HOA laws, you’ll figure out what can be done lawfully by homeowners associations. You can also ask board members of HOA’s nearby for the resources they used to get started.
It would help if you considered hiring a lawyer to handle the legal aspects of creating and maintaining an association. Look for attorneys who currently or previously served homeowners associations and ask for references.
3. A Voluntary or Mandatory HOA: Start the Right One
Next, you need to decide whether your homeowners’ association will be mandatory or voluntary. The people in your community will also impact your decision. Listen to what they say and think about having an HOA.
It would help if you prepared to inform them of the intended actions to accomplish a safe and efficiently run HOA. Here are how both types differ:
As its name suggests, it means that everyone in a community has the choice (without any commitment) to take part in the association. It is a better option in communities where most people are not interested in forming an HOA.
Mandatory participation could be a better option if you get the support needed to start a new homeowners association. This type of association is suitable in communities where some expenses, such as neighborhood landscaping or maintenance costs, are covered.
4. Invest in HOA Insurance
Insurance is recommended when starting an HOA to acquire protection early on when starting up. It’s critical to have the right HOA insurance that provides essential coverage for various situations that can occur within a community.
For example, if a storm damages private property, the policy can help with repairs. This type of policy covers common areas for a residential housing association, including restaurants, swimming pools, gyms, and gardens.
While some of these areas can be difficult to insure, aim to cover as much as possible. Preferably, the HOA you plan to form should have these five types of coverage:
- Social host liability insurance
- General liability insurance
- Property insurance
- Workers’ compensation insurance
- Officers’ and directors’ insurance
5. Consider the Operational Needs and Wants
A homeowners association may cover several services, including everything from handling garbage fees to maintaining shared spaces. As a community developer, you are supposed to include the right ones based on the needs and expectations of the HOA.
All the common areas, such as patio areas, elevators, spas, parks, and sports courts, should also have insurance coverage.
Every property arrangement is different, so consulting with an insurance company to review your choices is highly recommended. After surveying the neighborhood, you should have a clearer idea of how it will run and function.
Make sure it meets the expectations and operational needs. These will play a role in drawing up the required governing documents.
6. Determine Fees and Create a Budget Accordingly
To ensure that your HOA is solvent, craft a realistic budget to cover all the costs of what this association will be managing. Take into account the cost of the responsibilities as well as operational needs and requested wants.
When building a budget, you should incorporate a buffer against unexpected repairs and price increases. That will prevent HOA fees from rising dramatically every year. While you’ll usually collect dues from members monthly, there might also be annual fees.
7. Name Your HOA Accordingly
Most homeowners associations are named after the community they are serving. Make sure the name of your HOA is a community decision, not yours. Still, you’ll need to come up with several choices and allow the community members to vote.
Check the trademark database so you don’t choose a name that is not available. To avoid confusion, it shouldn’t be similar to the names of other associations and organizations within your county.
8. Run a Nonprofit Organization (NPO) or Limited Liability Company (LLC)
If you want your HOA to be a real association and act as a legal entity, you must create a non-profit or LLC. In any case, there will be some taxes to pay. This is another thing to consider when building an HOA budget.
Each year, thousands of people start new homeowners associations. There are many benefits to creating a homeowners association, including maintaining neighborhood unity, promoting neighborhood safety, improving neighborhood aesthetics, and helping neighbors save money.
While setting up an HOA is not so difficult, it does take a lot of time and effort. The steps will be slightly different depending on the kind of homeowners association you’re creating. That’s why consulting with an HOA management company might be the best course of action.
Call us today to get started on creating your next HOA community!