One of the most important tasks of an HOA board is property, legally, and effectively using the funds payed monthly by the residents in your community.
The two most basic areas of spending that the board will be dealing with is 1) the daily, weekly, and monthly expenses that are recurring, and 2) unexpected and expected large repairs or additions.
Two separate funds should be set aside in the yearly budget to account for both of these areas of spending. These are called the operating fund, and the reserve fund.
The operating fund exists to pay for everyday expected expenses. Some items that can be part of your monthly operating fund are as follows:
- HOA management fees
- HOA software fees
- Other accounting fees
- Communal utilities (such as trash pick-up etc.)
- Maintenance fees (such as electricity and plumbing in common areas)
- Pool/tennis court/office maintenance and cleaning
- Security service fees
Although the previous list is not an exhaustive list, they are some of the basic items that should be considered every year as you build your yearly budget. These items will give you a general idea of how much money you will be spending each month. As always, it is a good idea to continually be proactive in making sure you are getting the best deals with your vendors and not overspending in the operating fund.
The reserve fund is a separate fund that is set aside for large projects, unexpected repairs or expenses, and expected (but not yearly) repairs. These expenses can be any of the following items:
- Repaving roads
- Replacing or adding sidewalks
- Painting of common buildings
- Roof replacement on homes or common areas
- Pool repair/pump repair
- Large landscaping projects or repairs
- Construction of new amenity (such as playground or tennis court)
The common factor that unites both funds is that both are taken from the monthly HOA fees payed to the board by the homeowners. It can be difficult to determine how much money should be allocated to the reserve fund. A reserve study can help to decide how much money you will need over a long period of time to take care of the costs which do not come every year but can nonetheless be quite costly.
One further consideration is the occasional necessity for special assessments. Special assessments are needed when a repair or addition is needed but there is not enough money in the reserve fund to take care of the costs. Depending on the requirements levied by the governing documents, certain measures will need to be taken to gain approval for the project. This can include everything from approval by voting to adequate notice. In addition, a limit is often placed on how much an HOA can yearly spend on special assessments.
Properly managing money in your reserve fund and operating fund is one of the most important jobs of an HOA board. At times it can be overwhelming, but your hard work and dedication is sure to pay off in the long run.