9 Things You Should Know When Setting Up An HOA Budget

Planning an HOA budget can be difficult work, especially if you’ve never done it before. With so many things to consider, it’s easy to lose track of the details. Luckily, there are some things you can do to ensure smooth preparation.

HOA Budget Guidelines to Live By

Setting a yearly HOA budget is a crucial part of a homeowners association, but the laws about how the process should go are often poorly understood. This can lead to less-than-ideal practices, so we’re providing some best practices for your HOA board as it sets its budget this year.

1. Know What the Budget Is For

Happy young family couple planning monthly budget | set hoa budgetThe first thing you must do is know what the budget is even for. This way, you can anticipate the right expenses. For instance, if you’re budgeting for a special project, you must draft pro forma budgets.

If you’re planning the annual HOA budget, you must take everything into account. The annual budget sets the tone for the entire year and determines how much to charge homeowners in assessments.

Some of the essential items you must include in your annual homeowners association budget are:

  • Utilities (like water, electricity, gas, and the like)
  • Insurance
  • Maintenance needs
  • Vendor services
  • HOA management fees
  • Reserve fund contributions

2. Look at Your Governing Documents

Your governing documents should include a description of how the HOA budget is to be adopted every year. Most of the time, the budget will be adopted by either the HOA board or by vote from homeowners. And, in some instances, you might need both, especially if you’re needing to adopt a budget that includes a big assessment or dues increase that will largely affect homeowners and would require their vote.

It’s important to check your governing documents first before you plan HOA budgets. By doing so, you can ensure you’re following the proper guidelines set forth by the association. Failure to abide by the governing documents can result in legal consequences for the board and the HOA.

3. Check Historical Data

When planning your budget, it’s always a good idea to look at past data. After all, this is how projections are made. Compare the actual expenses the association incurred the last 3 to 5 years. This way, you can get a rough grasp of what your upcoming year will have in store in terms of costs.

Keep in mind, though, that you shouldn’t just rely on past data for your projections. A lot of outside factors can influence your budget. For instance, an increase in wages can significantly change how much vendors charge for their services. Make sure to marry the past with anticipations of the future, as well.

4. Consider Your Reserve Studies

Staying up-to-date on reserve studies is also important for understanding what will be needed in terms of future replacements and repairs for the community. In fact, some state laws even require reserve studies on a regular basis.

A reserve study will let you know how much money is currently in the reserve fund versus the estimated life remaining and overall condition in certain elements on the property. This way, you better know what to expect.

Without a reserve study, you risk running out of money for future replacements or capital improvements. As a result, your HOA will have no choice but to raise assessments or charge special assessments, which no resident will want.

5. Determine Assessments

Setting yearly assessments is a big deal because it affects homeowners directly. After you’ve done everything necessary to develop your HOA budget for the coming year, it’s time to set those assessments in one of two ways: charging each homeowner equally or charging each owner based on the percentage of property their unit holds.

When you set HOA budgets, though, it’s important to keep in mind that not all homeowners might pay their dues on time or religiously. Some homeowners default on their payments. Make sure to account for delinquent homeowners when preparing your annual HOA budget.

6. Negotiate Contracts

Businessman putting a card with text Time to negotiate in the pocket | set hoa budgetVendor services are a big part of your annual HOA budget. For this reason, it’s best to assess your contracts and send out requests for proposals ahead of time. This will help you allocate funds with better accuracy.

Make sure you’re getting the best deal and don’t be afraid to negotiate with your current or new vendors. The first estimate doesn’t have to be accepted if you think changes should be made.

7. Share Money-Saving Tips

Giving owners ways to cut back in the new year will help everyone be more conscious. Send out emails or newsletters to the community with best practices for water usage, recycling, etc. This will not only cut down costs but can also be beneficial for the environment.

8. Ask for Help

It’s not a bad idea to ask for professional assistance when drafting your HOA budget, especially if your board has little experience in this field of management. Several HOA management companies offer their services on a full-time or remote basis. HOA managers have the necessary expertise and experience to handle budget preparation.

If you can’t afford professional services, you can always turn to the internet for aid. A simple search will turn up numerous HOA budget templates you can use as guides. There’s no shame in asking for help. In fact, doing so only means you care about the community.

9. Be Transparent

Lastly, communicate regularly. Homeowners trust their HOA board to make and use budgets with the utmost integrity. It’s also easier to get budgets passed if you’re open and honest, getting the community involved in understanding the numbers and taking responsibility for their part. Plus, you might be able to get input or ideas board members hadn’t thought about yet!

HOA Budgets Serve a Purpose

Many HOA boards shudder at the very mention of HOA budget preparation, but it doesn’t have to be that way. Armed with these tips, enough time, and a willing effort, you can set your budget without running into problems. Remember that an HOA exists to serve its community. Without budgets, there would be no assessments. And, without assessments, an HOA can’t fulfill its duties.




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