Nowadays, being a homeowner or HOA board member can come with a fair share of headaches, including government regulations and budgetary constraints. However, when all is said and done, and the property (or properties) sells for double its previous value, the rewards are often well worth the sometimes-tiresome effort of owning the home. There is one thing you can do to ensure that the process of maintaining this house goes as smoothly as possible: plan your HOA budgets VERY carefully!
Because the home owners associations can be notorious for making frequent last-minute changes, homeowners and investors are sometimes caught off guard completely when audit season sneaks up on them. For these reasons, you’ll want to take a few simple steps to ensure that the proper amount of planning is implemented before you realize it’s going to cost thousands of dollars just to move a mailbox a few inches closer to the driveway. With your budget correctly planned throughout the year, at least you won’t be so surprised to learn that the association has made this determination about mailbox placement and the fees incurred upon changing said placement. Here are eight ways to properly plan your HOA budgets.
Prioritize!
Whether you’re a Trump wannabe or a modest property investor, if you can’t properly prioritize which homes are most important in terms of budget, you are basically destined for failure. HOA budgets can be far more manageable when you make these clear determinations. For example, if one home is falling apart, but it’s located in an up-and-coming neighborhood, and the other home is relatively new with minimal problems, but it’s only moderately priced, you might want to spend the extra time and money fixing up the aforementioned house. While the investments will likely be greater on this property, so will your long-term returns on those investments since the house is in a prime location compared to the other. Prioritizing which homes to focus on throughout the year will definitely smooth things out when the association rolls out the next set of regulatory changes – and it will also make your wallet heavier!
Consider Legal Costs
It goes without saying that you don’t want to own or even manage a property without the assistance of at least a legal and financial advisor, but at what cost to your bottom line? While determining an operating budget for the entire fiscal year, many homeowners will often either overlook or simply forget to account for these crucial services. Yes, it may be true that your lawyer won’t have to lift a finger for that entire year when all goes smoothly…but, what if a tenant suddenly breaks his leg in your rental home? Without planning for legal costs throughout the year, you might find your budget in shambles sooner than you previously imagined!
Plan for Repairs
Even if all your properties were in pristine condition during your last inspection, you’ll still want to set some money aside for any possible repairs that might catch you by surprise. Although everything checks out now, you never know what might happen in a given fiscal year. For all you know, Old Man Winter can bring along a hard freeze that sticks around for weeks. In this case, you’ll probably stay up all night, every night, wondering whether or not those pipes will freeze. However, if you’ve already got repair funds tucked away somewhere, you won’t spend near as much time concerning yourself with uncontrollable circumstances.
Reserve Budget
Before you move on from planning your repair budget, there’s one more factor you’ll want to consider: mandatory repairs, otherwise known as reserve contributions. Homeowners associations will often determine that each house in the neighborhood should follow certain standards. For example, as of the next fiscal year, an association might decide that every house needs to have a roof constructed with certain materials. If you’re one of the unfortunate owners who still has the older materials on that roof, you’ll be shocked to see how much will be depleted from your HOA budgets when the appropriate changes are made. Instead, set some extra reserve contribution money aside for mandatory repairs.
Account for Operating Expenses
Aside from anything repair-related, you’ll also want to keep track of your HOA budgets by minding those operating expenses. These include utilities such as power, water and gas, as well as security systems and any other service that the association might require, such as landscaping. While it can often be difficult to account for fluctuating costs in utilities like gas, for example, you can stay on top of this by doing the research necessary to adjust for inflation, etc., and determine what those rates will look like in the coming months.
Pay Those Fees!
In addition to some adaptations that could be applied to the homeowners agreement throughout the year and operating expenses, you should definitely come prepared for the standard homeowner fees that each association typically charges. This will only require some simple computing. Usually, all you’ll have to do is add the total of your operating expenses to the cost of the required reserve contribution. Once this is done, you’ll have a good general idea of the total fees that will be incurred by the end of the fiscal year.
End-of-Year Statements
When making final adjustments to your HOA budgets, you’ll want to compare your current year’s actual spending to your planned budget in order to determine shortages or overages. The end result of this comparison will account for your end-of-year financial statements. This statement will show if the association made more or less money than planned each fiscal year, making it far simpler to plan for the following year’s budget. Without the pivotal end-of-year statement, many homeowners associations would simply go bankrupt due to lack of planning for future years.
Get Some Help!
Since, as you can see, there are several factors to consider while keeping your properties afloat and juggling other daily tasks, you shouldn’t be ashamed to acknowledge that you may need some help managing these homes throughout the entire process. While it’s true that lawyers and financial advisors can provide some valuable insight about homeowners associations, you might want to dig a little deeper by enlisting the services of a company like Slatter Management. Not only is this company specifically-dedicated to managing homeowners associations, but its consultants have the expertise to think outside of the box and offer easier solutions. Rather than simply reacting to the previous year’s overages or shortages, Slatter Management will use specific formulas and top-notch industry strategies to proactively determine how to manage next year’s HOA budgets. With this in mind, why would you ever want to handle ALL of these arduous steps on your own?
