The first thing to do is to start early! You should start gathering documents to examine about 4 months before the end of the fiscal year. You’re going to need at least one past budget, bank statements for the past year, more if you have access to them, your projected income statement and your current reserve study. The first thing to look at is the current budget, and how much was allocated to what. Then analyze whether the budget worked, did you have enough for all the repairs, maintenance etc and manage to save the amount forecast in the budget? Next, review all the financial statements for the past two years to have a solid understanding of your community’s financial situation.
The next thing to do is review the most recent reserve study. A reserve study is an in-depth study of a property’s components and its reserve funds, it needs to be detailed and it needs to be done by an expert, find out more here. You need to make sure that your association’s reserves are properly funded and maintained. Check any planned reserve projects and calculate them in so you won’t need to find money in the budget for a special assessment later on.
After having done that, get up, have a stretch and go for a walk. Bring a pen and paper or a tablet, and draw a line down your page (virtual or physical) and write need and want. Now you’ve done that, really look at your HOA or condo. You may want to bring another person so you don’t miss anything, a handyman or expert would be ideal. Check every shrub, wall, drain, and appliance. What NEEDS doing and what would be nice to do? It’s always nice to repaint the clubhouse, but it may not be a necessity. However, if the air conditioning sounds like a dying cat that’s urgent and has to be dealt with right now. Don’t forget to review your review maintenance checklist and repair reports to get an idea of what may need maintenance in the coming year and include it in the budget. Use the documents you analyzed earlier to calculate how much your association needs to budget for the day-to-day running of the HOA or condo.
Now you’ve been reinvigorated by your walk it’s time to look at contracts. Yes, I do mean all of them. It’s important to know that you’re being charged the right amount for and that you’ve got the best service provider on the market. Chat to your contract provider, see if they plan to increase their fees. Then shop around and see if you could do better elsewhere. Remember, the lowest offer isn’t always the best. If you can then cancel the contract before the new budget begins, and if you’re happy then that’s great.
The next step is to contact your utility providers. Try and get an estimate of how much their prices are going to increase. Because they always do, and it’s important to factor that into your budget.
Right, are you still with me? Are you still sane? We’re getting there I promise.
The penultimate thing to factor in is savings. You should always budget to put money aside for the future, or for any unforeseeable emergencies. Of all the income that your community receives aim to put 20% into savings.
Finally, we’ve got homeowner fees. This is easy to calculate, it’s just operating expenses + annual reserve contributions = homeowner fees. This figure can then be divided equally among homeowners unless your community does things differently.
Put simply your budget should be around 75% recurring expenses. That means utilities, insurance, and maintenance. That’s based on past years, and including around 5 to 10 percent increase to account for inflation. After that, you’ve got savings which we’ve talked about and a little bit extra.