Any HOA Board member will understand how the process of planning an HOA budget works: estimating expenses first, then determining the association’s income, the majority of which are homeowners association fees. The important part is knowing the basic components needed for an HOA budget. In case you need a refresher, we’ve detailed them here.
Reserve money must be put aside each year and is meant for major, long-term projects. This money is to only be used for maintaining, repairing, or replacing anything the association has said it will or that involves litigation.
To anticipate what needs to be worked on, your Board should do a reserve study each year. This involves having an expert from outside determine projects that will need to happen within the next 20 years and the amount they will cost. Your association will then know what to set aside in the reserve for these projects.
The part of your HOA budget for operating expenses is meant for maintenance day-to-day and services for homeowners, such as costs for management, utilities, accounting, cleaning, and legal.
In order to correctly determine these costs, it’s a good idea to have them drawn out by week, month, or season. You’ll also want to note how these services will be provided—whether it’s through someone from your property management company or a contracted company.
Most of an HOA’s revenue is dues from homeowners, but there are a few other income sources you may have. Those could be: flip tax a homeowner must pay when they sell a unit, interest on the reserve fund account, or fund-raising. Be aware, though, that federal law only allows a certain amount of money to be raise by fund-raising.
Your HOA Board members will want to be sure each component of the budget is prepared and planned for properly. You might want to hire an accountant, attorney, or homeowners association manager to help you make sure everything is in line with your governing documents and North Carolina law.