It is no secret that saving money is important, especially when it comes to managing properties and communities funds. Running an association can be a challenge, and the only way to successfully run an HOA is to create a proper budget.
Creating a budget requires foresight into the future and includes expected costs as well as HOA dues and revenue for the association. Keep reading to learn what all needs to be done to successfully create a budget in a mixed-use homeowners association.
Step 1: Create a Strategic HOA Business Plan
HOAs provide many benefits to homeowners, including better property values, improved quality of life, and reduced crime rates. They also help keep properties up-to-date and maintain an attractive appearance for the entire community.
An HOA business plan is a key component of any homeowners association’s management. When creating a business plan, they need to consider the community objectives for the upcoming year and ensure the annual goals are outlined each month.
It’s essential that the budget is created and approved well in advance so there aren’t any last-minute issues with some members not agreeing with the allocations.
Step 2: Send Out RFPs (Requests for Proposals)
Once you’ve created a business plan, it is time to deal with RFPs. Send them out for every contracted service, including:
- Lawn care
- Pool management
- Trash and snow removal
- Tax preparations
- Insurance policies
By doing so, you will be able to calculate the vendor costs accurately rather than assessing them in your budget. This can take a lot of effort and time, but It is worth the hassle. Having these proposals in hand before creating the budget fills the gap without any guesswork.
Step 3: Estimate Utility and Maintenance Costs
The HOA board of directors is responsible for assessing the expenses in the coming year, among other things. This includes everything from maintenance to repair and utility costs. To evaluate these expenses for the coming year, you need to look at the previous year’s prices.
You should also take into account any other expenses that may arise during the year. This could involve adding any new costs that are expected to be added in the upcoming year.
In addition to anticipated rises in energy prices and utility expenses, this may also include new repair costs that should be considered to avoid deteriorating or worsening community conditions.
When creating a budget, make sure there are enough funds to cover these expenses in the coming year. Board members can do this by either increasing dues or asking for an assessment from homeowners.
Step 4: Examine Reserve Fund
What is the HOA reserve fund? It is a fund that associations are required to maintain. While reserve funds are beneficial, not all HOAs have one. It is necessary to conduct a reserve fund analysis to ensure the necessary funds are available when needed for unexpected costs.
The reserve fund is used for emergencies, major repairs, and anything else that is not covered by the monthly HOA dues. For example, if there were a sudden increase in the cost of insurance, the reserve fund would be used to cover it.
That being said, it is vital to have a good reserve funding strategy. Before conducting reserve studies, you should consider your state regulations first. Be sure to update your reserve fund analysis on a regular basis.
By staying on top of your reserve funds, you’ll be able to ensure that every community member contributes sufficiently to cover the funds needed should something happen that is not within the normalities of the HOA monthly dues.
Step 5: Do the Math
Once you have estimated the cost of utilities, routine maintenance work, and repair expenses— you can start to prepare all the numbers for your budget.
You can either enter these numbers into a spreadsheet and calculate the budget by hand, use budgeting tools or software, or contact an HOA Management service to assist you.
Regardless of the method you choose, we recommend keeping notes on all calculation methods and budget assumptions. You should also note any line item descriptions; your accountant may need these come tax season.
Step 6: Take into Account All the Sources of Income
When it comes to assessment fees, you need to have a clear idea of how much every homeowner is supposed to pay. Take into consideration all the guaranteed income, such as monthly dues, and go from there to ensure every source of income is included in the calculation.
Most mixed-use associations practice Zero-based budgeting. What does that mean? While the late fee income should be included, just like other income sources, be sure to exclude leftover funds from prior years.
Once you know all the sources of income and expenses, you will be able to figure out assessment payments and create a more accurate budget.
Step 7: Inform the Community Members about the Budget
Let’s assume your HOA budget is finally approved. Good job! Share it with all the homeowners and community members by distributing it to them in a straightforward way so that it is understandable to everyone.
After all, they have the right to gain insight into the budget. Aside from collaboration and cooperation, transparency is essential for running a thriving homeowners association. When you provide the approved budget upfront, your clarity will assist in keeping the community together.
If anybody objects to the approved budget, you should still have time to make any necessary adjustments if warranted.
Mixed-use homeowners associations are essential for everyone who buys a house in a gated community. If you want to run an HOA successfully, it is necessary to create a budget correctly using different tools and methods.
It’s critical that every HOA has a budget in place that makes sense and takes care of the properties and the community.
As an HOA manager or board member, you don’t want residents to feel like they are not getting what they are paying for. At the same time, you don’t want to bankrupt the HOA. It is imperative to create a budget for your community so that everyone is happy. However, it’s easier said than done. Get in touch with us. We can make this process easier.