For multi-family housing, which is usually an apartment building or a condominium, may be regulated by a homeowner’s association (HOA) and managed by a property manager or a building administrator. The HOA itself may be managed by an HOA management company. The setup varies; and it is usually upon the discretion of the unit owners, real estate developer, and the HOA.
Assuming the condo community is managed by an HOA, which in turn is managed by an HOA management company, the most common question that unit owners and tenants ask is if an HOA management company is necessary, thinking that hiring such services means higher association dues. The answer is “yes,” and here’s why: the association’s finances are better managed.
One of the biggest challenges that HOAs deal with on a regular basis has to do with finances; specifically, budgeting and reserves. How do they ensure that there is always enough for emergencies, from unforeseen equipment breakdowns to natural disasters, for instance? How can they make sure, too, that they have enough money for daily operations? From landscape to building maintenance, and other services needed to ensure the safety, comfort, and security of the community
States generally have specific regulations regarding HOA or association budgets. For instance, the HOA may be required by local regulations to update their budgets annually, taking into account financial challenges experienced the previous year.
For emergencies, HOAs should have a reserve fund. Unforeseen circumstances that may require funding include emergency equipment repairs or replacement, unscheduled facility and utility upgrades, and disasters and accidents (such as flooding, and fires).
Usually, association dues only cover operational costs and money that goes into the reserve fund is usually “charged” as an additional expense or fee. This additional burden isn’t usually welcomed “with open arms,” as one could imagine. The better alternative is to hold a fundraiser.
The challenge here isn’t the type of fundraising to hold but rather, the amount of money that the reserve must have at all times. Financial forecasting is needed here.
Professional assistance may be called for
Understand that homeowners/condo associations are run by volunteer residents, which means they have a life outside of the association. They have day jobs, families, and other responsibilities to take care of. What this translates to is basically overlooking and neglecting association duties without meaning to. And the HOA aspect that usually takes the brunt is finances.
An HOA management company usually has an accounting/financial expert that oversees the HOA’s finances. In general, HOA management companies ensure that the association is fully functional, serving the interest of both the community and its members.