Homeowners Associations (HOAs) play a large role in creating and maintaining a welcoming and fulfilling environment for their communities. That said, it takes 
a dedicated team of professionals and resources to make that happen. One of the most crucial responsibilities of an HOA, which is often overlooked, is budgeting. Today, we’ll review the importance of an HOA budget, how to create one, and an example budget sheet to go off of.
Contents of This Article:
- Why Do You Need an HOA Budget?
- How to Create an HOA Budget
- Example of an HOA Annual Budget
- Best Practices for HOA Budgeting
- Choose BMG For Your HOA Management
Why Do You Need an HOA Budget?
A homeowners association (HOA) budget is a financial plan outlining the HOA’s income and expenses for the year. It helps the association distribute money, set fees, and plan for necessary repairs and improvements within the community.
For instance, a budget helps plan for necessary expenses like maintenance, insurance, and management fees. Additionally, it helps plan a reserve fund large enough to cover unforeseen costs like major replacements or repairs. Furthermore, an HOA budget is crucial in determining homeowner dues, which are the HOA’s primary source of income. Without estimating expenses for the year, it’s nearly impossible to determine how much to charge in dues.
Essentially, creating a budget provides a guide for the board and Philadelphia HOA managers to make smart financial decisions throughout the year. Next, we’ll go over how to create a budget, give tips for budgeting, and provide an example of an HOA budget.
How to Create an HOA Budget
An annual budget is crucial to an HOA’s success. That said, creating a successful budget involves several important steps. Read along as we review several steps for the board and HOA managers to follow.
- Determine Income
- Assess Expenses
- Create a Plan
- Look at Past Budgets
- Set Priorities
Determine Income
The first step in creating a budget is knowing how much money you have coming in each year. That said, the main source of income for most HOAs is the assessment fees paid by homeowners. These fees cover most operational costs, add to a reserve fund, and fund community enhancements.
Other revenue streams for HOAs may include rental income, event fees, or fines for rule violations. While they’re less significant than HOA dues or fees, they can help supplement the overall budget.
Assess Expenses
Next, determine how much the HOA spends on operational costs and community enhancements and how much goes toward a reserve fund.
Operational costs include everyday expenses like landscaping, utilities, insurance, management fees, and more.
On the other hand, community enhancements are large projects or upgrades that enhance the community’s value. For instance, the HOA may decide to install a community pool or improve the landscaping throughout.
Finally, a reserve fund is set aside for major repairs or large unforeseen expenses.
Create a Plan
Once you’ve determined the HOA’s income and expenses, it’s time to develop a plan. What does the association want to achieve in the upcoming year? When establishing goals for the HOA, pay attention to what everyone has to say. For instance, consider surveying homeowners within the community to ask what changes they want to see and what they think should stay the same.
Gathering several opinions to determine objectives can help you understand what everyone wants the community to be like. Then, once you develop a few mutual goals and objectives, you can plan the budget accordingly for the upcoming year.
Look at Past Budgets
During the HOA budget meeting, review the annual budgets for previous years. This can help give you an idea of past projections and how they compared to the actual expenses for any given year. For instance, by reviewing past budgets, you may see that your actual maintenance costs always end up being higher than your projections.
Additionally, you may see that there isn’t a large enough reserve fund to cover unexpected costs for most years. Seeing what parts of the budget were spot-on and what could have been done better can help create a more sound and accurate budget for the years ahead.
Set Priorities
Repairs and replacements are vital to an HOA community and comprise a large part of the budget. After all, HOA members are paying to live in a well-kept community and deserve to have repairs and replacements prioritized. However, you can’t take care of each of them at once. So, it’s important to schedule them based on urgency and prioritize needs rather than wants.
Example of an HOA Annual Budget
Planning an annual HOA budget can be daunting without the right tools and resources. So, we’ve provided you with a sample budget to go off of.
Best Practices for HOA Budgeting
Creating a sound HOA budget involves following best practices to ensure financial stability and community satisfaction. By implementing these practices, HOAs can effectively manage their finances, maintain transparency, and help create a sense of community between members, homeowners, and managers.
- Maintain Transparency- Communicate the budgeting process with homeowners and ensure they have access to budget information. Keeping them informed and engaged in financial decisions helps keep everyone involved.
- Plan for the Long Term- Plan for long-term projects and community improvements. This helps ensure financial stability and prepares you for necessary upgrades in the future.
Embrace Technology- Planning a budget by hand can create room for human error. While technology isn’t perfect either, there are several management tools to help streamline the budgeting process.- Create a Reserve Fund- A contingency fund is one of the most crucial aspects of your HOA budget. Having a fund for emergencies can prevent financial strain in unforeseen circumstances.
- Monitor and Adjust- Once the budget is set, continuously monitor and adjust it as necessary. Look at your actual income and expenses compared to what you’ve estimated and adjust the budget as needed to stay on track.
Choose BMG For Your HOA Management
Developing and sticking to an HOA budget is crucial to the overall success of a homeowners association. That said, it takes contributions from the HOA board members, homeowners, and HOA managers to ensure a realistic and accurate annual budget.
If you’re looking for professional HOA management for your association, look no further than Bay Property Management Group. BMG specializes in all things property management, including for HOAs! We can help plan and coordinate meetings, prepare annual HOA budgets, collect dues and fees, and more. Contact us today to learn more about our HOA management services!
