10 tips for preparing budgets for HOAs, condos and community associations

1. Create a task force

By dedicating a subset of your board to focus on developing your HOA budget, you can speed the process along and work more effectively. Your task force should include the board president, treasurer, community manager, and the finance and budget committee heads. You may also want to enlist the help of people outside of the board, such as a financial consultant or accountant

2. Survey your homeowners

Prior to your budget planning session, be sure to survey your homeowners to determine what changes are most important to the community and what things they may want to keep the same. While you don’t have to do everything the homeowners want, it’s important to get their input when determining priorities.

3. Schedule separate budget planning session(s)

Your budget planning should not be tacked on to the end of a regular HOA board meeting. Set aside ample time for a meeting (or several meetings) where your task force can focus solely on the budget. The HOA budget is vital to your community’s financial success, so you shouldn’t rush through it or allow distractions.

4. Know where your HOA finances stand

It’s impossible to plot a course for the future without assessing your current financial situation. Be sure you know how much money your HOA has in its various accounts, and review and analyze your records over the past two years. You’ll also want to review past budgets and compare budgeted expenses with actual costs. Note areas where you haven’t allocated enough in the past or paid too much, so you can avoid those situations going forward.

5. Outline community goals

Sit down with your team and determine what goals you want your HOA to achieve over the next three to five years, and what needs to be accomplished during the coming year to ensure you meet those goals.

6. Prioritize projects

List any repair and maintenance projects that your HOA wants to accomplish, and then prioritize that list based on things that you need to do vs. things that you’d like to do. Obviously, projects that ensure people’s safety or fix things that are broken should be prioritized over beautification efforts.

7. Make some calls

Once you have your list, call some vendors and get some rough estimates as to how much it would cost to get your various projects done. While these aren’t exact figures, it may help you determine which projects you can address in this year’s budget, and ones that may have to wait. Also, call the people you regularly work with for things like landscaping and maintenance and check to see if they are planning on raising prices or if you can lock in a rate.

8. Prepare for the unexpected

Be sure that you leave some wiggle room in your budget for unexpected expenses. The economy could take a hit, causing vendor prices to rise. Some of your homeowners may not pay their due. While your reserve fund can help with unanticipated expenses such as a natural disaster, you don’t want to deplete those funds to make up for budgeting oversights. Speaking of your reserve fund…

9. Don’t forget to save

Try to set at least 20% of your HOA’s income every year aside to go into your reserve fund or savings account. To make sure that your reserve fund is healthy enough to help the community if and when you need it, update your reserve study on an annual basis so you know how much money you need to allocate to the reserve in your yearly budget. Remember, many states have specific laws around reserve studies, so make sure whatever you do complies with your state regulations.

10. Create your budget

Once you’ve taken all these factors into account, you can create your budget. List all anticipated costs, include the estimates you’ve gathered, and remember it’s better to overestimate than underestimate. Your HOA budget should include income, admin costs, utilities, contracts and services costs, insurance, and the portion for your reserve. When you have determined your final budget, you can divide that number by the number of homeowners to determine what your HOA fees should be.

If your HOA is having a hard time meeting the community’s expectations and staying in budget, you may want to consider an HOA loan. Valley is an industry leader in HOA banking, and can create a customized loan program that meets your HOA’s unique needs. With years of experience and expertise dealing with HOAs, property managers, and condo associations, our team will work with you to get you competitive terms and the funding you need. Visit our the Valley website, learn about our loan options, or apply now to get started.