Budgeting 101 for HOA Community Management

Effective budgeting is a critical part of HOA community management. An association’s budget balances the community’s savings and costs. Budgets also have to weigh immediate upkeep against planning for future projects, so that funds are allocated where they’ll do the most good.

In other words, how an HOA spends its money has major impacts on its success. A well-balanced budget helps your association protect property values and keep homeowners and other stakeholders happy. In fact, homes in an HOA typically sell for about 4% more than similar homes outside of an HOA.

But what exactly makes for an effective budgeting process? What steps should a board take to set their community up for good financial outcomes?

There are major benefits when board members discover they are capable of managing their own community. Self-managed HOAs can save tens of thousands of dollars in annual unit fees and other costs charged by a third-party company, among other self-management benefits.

Setting a well-balanced budget can put self-managed HOAs on the right foot and pay dividends in the long run. Here are some key aspects of basic budgeting for HOA community management.

Table of Contents

1. HOA Budgeting Is a Group Project
2. HOA Budgeting: Past, Present, and Future
3. Anticipating Income: HOA Collections and Assessments
4. HOA Accounting Software: Tools For the Future

HOA Budgeting Is a Group Project

Setting the budget isn’t a one-person task, so a treasurer shouldn’t feel the intense pressure that the financial health of the neighborhood is on their shoulders. In reality, those such as the community manager, reserve specialists, legal experts, and fellow board members should all play a role in setting an effective budget.

Additionally, an association’s governing documents should help with maintaining compliance. For instance, they may provide specific budgeting guidelines, such as timelines and limits on increases, as well as how and when to notify homeowners about the new budget.

In a 2020 homeowner satisfaction survey by the Foundation for Community Association Research, the largest percentage of homeowners said the best part about living in an HOA was a clean, attractive, maintenance-free neighborhood. By and large, they understand that their dues create this value. HOAs should take every opportunity to help homeowners understand how their dues are being spent.

Being transparent with homeowners about the budget means communicating to them the rationale behind the budget decisions that were made, as well as any changes in assessments or other costs. When seeking feedback from residents, it may be useful to form a budget committee.

HOA Budgeting: Past, Present, and Future

Analyzing the budget from the previous year or earlier can help spot patterns and anticipate potential operating costs in the current or future budgets.

Consider certain anticipated expenses such as insurance, utilities, taxes, maintenance, and consider if the cost of these will increase, and by how much. You should analyze your vendor contracts to ensure they’re cost effective as well, such as for landscaping, maintenance of amenities, and security personnel. Determine whether current contracts are performing well, and gauge the need to hire additional vendors.

Your financial planning should include long-term goals, such as projects and improvements that will increase property values and provide a better homeowner experience. Consider ranking these projects in order of priority to focus funds toward what is most beneficial.

Finally, review the reserve study to ensure the reserve fund is sufficient for anticipated expenses. This will reduce the chance of having budget deficits that carry into subsequent years and require special assessments to cover costs.

Anticipating Income: HOA Collections and Assessments

After determining and setting your budget, your association must perform an assessment. Of course, who doesn’t want lower homeowner dues—board members included? Yet, in reality, increasing costs may require assessment increases. Taking a pragmatic approach to covering increasing costs can prevent bigger financial issues down the road.

Note that a major, unexpected increase in your assessment from one year to the next may indicate that you need to carefully review your assessment, your budget, or both. Generally, it’s reasonable to expect some level of increase.

It’s also useful to review the state of your collections and the amount of outstanding debt from dues and other fees, as well as the expenses attached to collecting those delinquencies. In fact, when your HOA’s income from collections, your association should review the effectiveness of its entire invoicing and collections process and how that factors into managing finances.

HOA Accounting Software: Tools for the Future

Digitizing the accounting needs of your neighborhood can help streamline and optimize how you budget and manage finances, maximizing the value you can provide.

HOA accounting software is a unique tool designed to help you do just that. When setting your budget, HOA software allows you to automate key parts of the budgeting process and work from budget templates. Software also allows you to forecast future income and expenses and view reports comparing your budget to actual financial data.

It also offers other important financial management tools, such as bank ledger syncing and a variety of financial reports and other metrics to increase transparency with your stakeholders.

Most importantly, HOA software lets you collect dues and fees through an automated bulk billing system. You can segment invoices by unit, which is unique from other accounting software such as QuickBooks. Residents can pay what they owe digitally, and access other important data and communications through unique resident portals. This relational approach keeps the HOA and its residents connected.

Other key community management features of HOA software include:

·        Manage units, vendors, and residents in a cloud-based repository; easily search and access all data and communications records.

·        Track maintenance requests and violations.

·        Homeowners can make digital payments, set up autopay, send requests, view payment history, and view a community calendar through a unique resident portal.

·        Build a custom, fully-integrated website for your community.

·        Communicate through multiple channels, such as mass text, email, telephone messaging, community polling, and even mailing printed invoices and newsletters.

·        Enforce rules with automated, anonymous violation tracking, avoiding conflicts between homeowners.

Over 7,000 community associations across the U.S. use PayHOA to increase collection rates, forecast their financial futures, and recover lost revenue. See how PayHOA can help you achieve a better picture of your community’s budget and finances.

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PayHOA offers an HOA management software solution for HOAs of any size or managerial priorities. To find out if PayHOA fits all your HOA management needs, try our software free for 30 days.