In part one, we looked at how to begin preparing an HOA budget. We discussed setting goals, looking at the current finances, and prioritizing repairs. In part two, we’re going to look at gathering figures and how to plan for the unexpected. Take a look at some steps you can take to make preparing an HOA budget easier.
Expect the Unexpected
Life has a way of throwing wrenches into your plans, so while you can plan for a lot, there will be unexpected things that come up. Look at price inflation and the new rates that vendors could charge for services and try to plan for those increases. Go over your delinquency trends to help you predict how many homeowners will default on their payments.
Gather General Figures
Reach out to your vendors and contacts for ballpark figures on what they may be charging for their services in the next year. Discuss your contract, and don’t be afraid to negotiate with them to get prices that are more reasonable for your community. This may be a good time to consider new vendors if they have a good reputation and are priced better.
Needs > Wants
The needs of the community are far greater than the wants. Make sure that the needs of the community are budgeted for and taken care of before looking at how to take care of some of the things that are wanted.
Don’t Neglect Your Reserves
Remember that a portion of dues must be set aside for the reserve fund. The reserve fund helps you plan for future repairs and replacements. Update your reserve study and try to deposit at least 20% of the income earned from HOA dues in a reserve or savings account.
Create the HOA Budget
Now that you’ve discussed where your funds have gone, where you stand currently, and what the future goals are for the community, you’re ready to create the budget. It’s always better to overestimate rather than underestimate. Your budget should include income, administrative costs, utility costs, contract and services costs, insurance costs, and a portion for reserves. After arriving at an annual budget, divide it by the number of homeowners to calculate the HOA fees each household will be responsible for.
If you have questions on how to manage your HOA or set up a new budget, contact Prism Realty Management and check out part one of our “Preparing an HOA Budget” series here. Learn about who we are, the services we offer, and our process, then give us a call at 512-676-5842.