Proper funding is essential for the operation and upkeep of any HOA community. While dues can be a dreaded subject, ensuring that members are paying enough to cover everyday functions as well as major projects and repairs is critical. When fees are not adjusted accordingly each year – or at least reassessed to verify they are still adequate – this can take a toll on reserve funding. If reserve funds are not maintained, this can mean sticker shock for homeowners when they get a special assessment to cover unexpected repairs.
Conduct a Reserve Study
One of the best ways to determine how much the HOA should be setting aside in the reserve fund is by conducting a reserve study. It is a good idea to have a professional complete this assessment to make sure it is done correctly and accurately. A reserve study is made up of a physical analysis and a financial analysis. It identifies the current status of physical components such as roofs, sidewalks, building, amenities, and other physical assets the HOA is responsible for maintaining. The financial analysis will look at how much money the HOA currently has saved versus how much it would cost to repair or replace all physical components.
Once the reserve study is complete, the HOA can determine whether there is a deficit in funding, and how to address this issue. This could mean:
- Re-examining the budget and looking for ways to save on operational costs.
- Incrementally increasing dues to make up for this deficit.
- Making strategic investments to enhance funding.
- Taking a calculated risk and hoping for the best, knowing there is the potential of a special assessment should an emergency occur.
Since the HOA board is composed of volunteer members, there may or may not be someone with a strong financial background. Partnering with a property management company like Kuester can support financial management and provide valuable insight and guidance. It may also be a good idea to hire a financial advisor who can assist with money matters such as budgeting and reserve funds. There is nothing wrong with asking for help – the HOA has a responsibility to maintain and enhance the community, and this means recognizing areas where they may need more support.
Reduce the risk of leveraging significant special assessments or jarring increases in annual dues by ensuring that the reserve fund is adequately funded and operating expenses are covered. If your HOA could benefit from additional guidance and support, contact Kuester today to learn more about how we can help.