Proper HOA budgeting is important to keep the HOA operating smoothly. But problems may arise in HOAs that are self-managed, especially if they do not have a financial professional on the board. Budget mistakes can result in severe conflicts between board members and residents. This makes it essential for HOA boards to get help and hire HOA management services. Below are budgeting mistakes that HOA boards can make when they self-manage their associations:
Not Taking Inflation Into Consideration When Planning
When an HOA is self-managed, board members can easily yield to homeowners’ demand of maintaining association fees. If this occurs, the board is usually forced to sideline maintenance and repairs because of a lack of budget. For homeowners, not increasing association fees is convenient. But the board should consider inflation and prioritize the community’s welfare, even if this means increasing HOA fees.
Not Considering Unpaid Dues and Bad Credit
When the board makes budget projections, they must consider unpaid dues and bad debts. Otherwise, they may not have sufficient funds for next year.
Not Streamlining the Fee Collection Process
The association board uses HOA fees to meet the HOA’s financial obligations. These fees are used to maintain common areas. If the board cannot collect the assessments, they can end up with an unfunded budget. This can also happen if there are lots of arrears. The association won’t have the funds to perform all financial obligations without enough budget to use.
Not Funding Reserve Funds Sufficiently
To ensure the reserve fund is properly funded, the board should be able to collect regular fees and assessments. Part of the assessment is allocated to the reserve fund, which is used for maintaining, repairing, replacing, and restoring common areas. An underfunded reserve fund can force the board to forego vital maintenance and repairs or seek out other fund sources to pay for such needs.
Homeowners must understand the importance of reserve funds. These funds also provide for emergency expenses such as repairs as a result of a hurricane. The HOA reserve fund needs to be maintained every year.
Not Considering Foreclosures
Because foreclosures are not expected, they must be considered during budget planning. Despite the presence of property liens, the HOA must wait to collect the assessments.
Usually, the HOA budget already counts the assessments of a certain homeowner. If this property is suddenly foreclosed, this can negatively impact the HOA budget. What will happen if several foreclosures happen in one year?
