The purpose of the reserve fund is to plan for future repairs and replacements in the association. But what about components that you can’t see and aren’t listed in the reserve study? For example, plumbing supply lines that aren’t included in the reserve study and will end up costing somewhere in the ballpark of $50,000 to repair or replace.
More often than not, sitting down to review your HOA reserve study can be about as easy to understand and enjoyable as sitting down to review the U.S. Tax Code. Just reviewing your reserve study is not enough. As an HOA board member, you’re responsible for using that study to plan for, allocate, adjust, and collect reserve funds accordingly.
Here are some ideas to help you interpret your association's reserve study, and put it to good use so that your HOA can pay for what your community needs to keep it in good repair, easy on the wallet, and lovely to live in...today and in the future.
Reserve funds are not an extra expense. They are part of the ongoing expenses of the homeowners association which occur at various points in time. The plan provided by your reserve fund specialist will help you in this process. It's much more preferable that homeowners associations have a plan to set the funds aside now, on a year-by-year basis. By doing this, the Association can spread out the collection of assessments for these expenses more evenly over the coming years.
There are other important reasons that Association monies should be put into reserves every month:
Funding community operations is one of the most important, if not the most important, functions of an HOA board. Properly overseeing day-to-day actions and long-term projects ensures the homeowners association will have a continuous supply of funds to keep the community running effectively.
You don’t want to be bored with numbers, spreadsheets, dollars and cents. You already know that’s what a budget is made up of. Instead, what actions are the most important for you to actually do to ensure financial success in your homeowners association? There are a lot of pieces and parts that come into play, but following this advice will help you get started in the right direction of financial health for your community.
As an HOA board member you probably know what a reserve study is and the importance of doing one. Equally important is that having the proper reserves in place will ensure that the long term assets in the Association (roads, roofs, pool, landscape, etc.) will be properly cared for and maintained.
When it comes to the annual budget for your homeowners association, it can feel cumbersome to understand and plan. It can also seem like an overwhelming task because you just don’t have a lot of accounting knowledge.
The budget planning process is a lot of work and a large responsibility for the HOA board to prepare. It’s a complex activity that has to start early so the budget can be finalized and approved prior to the beginning of the new Association fiscal year.
Preparing next year's budget for your homeowners is one of the most important undertakings for the HOA board. Fiduciary responsibility is something you pledged to look after for your community and this is an area where that really comes into play. There are a few things the Board should consider for next year's Association budget.
All members of the HOA board are responsible for the Association’s overall financial health; but the treasurer has specific duties to protect the Association’s assets. These duties—and the authority to exercise them—are found in the homeowners association’s governing documents and also in state laws. It’s a big responsibility, but fortunately an HOA manager can help with many of the details.
Making and sticking to a budget is not a hard concept for someone to understand. You bring in X amount of dollars each month and you have X amount of bills to pay. The amount of your income is spread out to cover your monthly expenses. Theoretically your income determines the expenses you can afford, although in America we tend to take this too far. But your HOA Board doesn’t have to!