Finance

Increasing HOA Income Without Raising Dues

Some Homeowner Associations resign themselves to the idea that the only way to increase income is to raise homeowner dues. This is not always the case. There are other avenues you can explore.

Ways to raise income for hoa without raising dues.

Ways to Increase HOA Income Without Raising Dues

  • Unique Programs such as Cable Access Agreements and Water Sub-Meter Programs. Wondering if your community is a candidate for these type of programs? Contact us to find out.

  • Review your Governing Documents. A few of the easiest and best amendments that give your neighborhood extra money are initiation fees and foreclosure fees. Read below for more details about both.

What are initiation fees?

Initiation fees are collected from the buyer when a home is being purchased in a community. Initiation fees are determined by the association’s governing documents and adding an initiation fee requires an amendment. The amendment is typically not difficult to get the appropriate votes as it is not charged to the current owners in the community and it does assist in funding the budget, reserves, or capital improvements. 

Adding an initiation fees can assist associations greatly in their financial state, allowing the associations to build reserves for future projects that would have negatively impacted their budget prior to the initiation fees.


A good rule of thumb for determining a community initiation fee is to calculate two months of dues for Condominiums or Townhomes, or one year’s worth of dues for an HOA. This will allow for the initiation fee to change as the assessments change each year. If the association prefer to set a flat dollar amount it could be written in the amendment that the amount can be changed at the discretion of the Board.

Ways to raise hoa income without raising dues.

What are foreclosure admin fees?

For properties that face foreclosures, a Foreclosure Admin Fee amendment is an option that many associations look into. When a home falls into foreclosure, the foreclosing entity is required to pay all the assessments from the date of foreclosure forward until the home is resold. However, any unpaid assessments owed by the prior owner, prior to the foreclosing entity taking ownership of the property are not collectable from them in Georgia. So, this results in a loss for the association as, there will be a deficit for the period of time the prior owner did not pay their assessments and fees associated with the association.

In an effort to make the association as whole as possible, a fee can often be required of the foreclosing entity upon taking ownership, in addition to any assessments due from the date of foreclosure. 


Like the initiation fee, if the language for the foreclosure admin fee is not present in the covenants then an amendment must be passed in the manner expressed in the covenants. However, also like the initiation fee, most associations see little resistance as it will assist in maintaining the integrity of the annual budget and lessen the burden on current homeowners to maintain the property.

Those are just a few ways to increase your HOA income without raising homeowner dues. There are more ways to consider.

If you want to discuss your community’s specific options for increasing income drop us a line.

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What is a Reserve Fund and Why Your HOA Needs One

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Ever wonder what a reserve fund is for and why your community needs one? Equipment, major components (like roofs in a condo community), and everything from private street repairs to pool maintenance must be undertaken from time to time, regardless of whether your community has planned for the expenses.


A reserve fund, which is similar to a savings account, is a financial fund that sets aside the difference between the income and expense of an hoa.

The Reserve funds should be used on expenses that will last longer than 3 years or cost greater than $10,000.

What is an HOA reserve fund?


Most HOAs prefer to plan ahead and set the funds aside now to avoid increasing dues or issuing special assessments when the money is needed later. Nobody likes surprise special assessments! Reserve funds are not an extra expense to your community—they just spread out expenses more evenly.

If a reserve study is obtained for an association, the planed expenditures will be listed out and explained how much should be going into reserves vs. how much should be going out and when.

There are other important reasons your HOA will put association monies into a reserve fund every month, read on for more details. 


Why HOAs Need a Reserve Fund

Why HOAs need a reserve fund.
  1. Reserve funds meet legal, fiduciary, and professional requirements. A replacement fund may be required by:
    • Any secondary mortgage market in which the association participates (e.g., Fannie Mae, Freddie Mac, FHA, VA).
    • State statutes, regulations, or court decisions.
    • The community’s governing documents.
       
  2. Reserve funds provide for major repairs and replacements that your HOA knows will be necessary at some point in time. Although a pool may need repairs every 5-10 years, every home owner who is able to use the pool should share its replacement costs.
     
  3. Reserve funds minimize the need for special assessments or borrowing. For most home owners in an HOA community, this is the most important reason. Surprise assessments and increases in dues are not a pleasant measure to take.
     
  4. Reserve funds enhance resale values. Lenders and real estate agents are aware of the ramifications for new buyers if the reserves are inadequate. Many states require associations to disclose the amounts in their reserve funds to prospective purchasers.
     
  5. The American Institute of Certified Public Accountants (AICPA) requires the community association to disclose its reserve funds in its financial statements.

 

How Do You Set Up a Reserve Fund for Your Community?

In our discussions with boards, Heritage Property Management, Inc. constantly emphasizes the need to build the appropriate level of reserve funds. One question that comes up frequently is how best to invest the reserve funds. The three main goals of investment for associations should be to:

  1. minimize risk
  2. make sure funds are liquid
  3. earn a decent rate of return 

Associations can minimize risk by taking the appropriate steps.

How to set up an HOA reserve fund.

The community's board of directors is responsible for choosing its investments. A good property management company can help your HOA navigate the investment options available. Heritage, for example, provides a list of institutions we deal with frequently and their current rates, but the ultimate decision lies with the board.

Once the board makes a decision on investing money, this decision should be communicated in writing to your property management company. At Heritage, when our clients notify us that they want to invest money in a reserve fund, we attempt to do as much of the leg work in getting the account set up as possible. Once an account is set up, the statements should always be addressed to the property management company so that all transactions can be properly recorded in your community's financials.

Would you like to know if your HOA has sufficient reserves for your community's needs?

Drop us a line, we'd be happy to speak to your HOA board members about their current reserve situation.

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Understanding Property Management Fees

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The adage “you pay for what you get,” is only accurate about half the time when it comes to property management. Sometimes you get what you pay for, sometimes you get over-charged… and sometimes you find a property management company who will give you a fair price and always do a good job.

But what exactly is a fair price when it comes to hiring a property manager? This is where the “what you get” element factors in. Different management companies perform different services and charge for varying fees. This article is an overview of the various fees that property managers charge to help you understand property management fees.

How much do property management companies cost in Atlanta?

What You Should Know About Property Management Fees

One thing to keep in mind is that you don’t necessarily want to hire the manager/company with the lowest fees – whomever you hire will hold a huge responsibility, and they need to be both qualified and good at what they do – otherwise they could end up costing you a great deal of money down the road (more than saving a few percentage points in fees).

The most important factor isn’t the price, it is the quality of service to your HOA. The best way to gauge good property management service is by judging the transparency of a property manager’s fees.

 

Questions to Ask a Property Management Company

When considering a property management company ask the following questions to understand their fee structure and level of service.

  • Do they seem willing to tell you everything upfront? 
  • What are their policies? 
  • Do they have a fair system that minimizes or eliminates the potential for hidden fees?

These are the most important things to look for and if you ask the right questions, you’ll have a good chance of hiring quality managers.

Have a question about property management fees that we didn't cover? Drop us a line. We'd be happy to help.

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What Home Owner's Associations (HOAs) Should Know About Taxes

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Tax season is upon us and as Benjamin Franklin once said, “in this world, nothing can be said to be certain, except death and taxes.” Unfortunately, HOAs are no exception. 

If you serve on the Board of Directors for your neighborhood’s HOA, and especially if you’re the treasurer, it might mean significantly more stress. However, there are ways to lighten the load.

A resourceful, client-focused property management company in Atlanta like Heritage Property Management understands HOAs, non-profits and how to confidently and accurately assist you by answering any relevant questions you might have.

To get you started, below are some of the most common questions and answers associated with filing taxes for an HOA.

Do HOAs have to file taxes?

Common Questions about HOA Taxes

+ When are HOA taxes due?

“For the calendar year associations, the due date is April 15 (formerly March 15th), although it can be extended for 6 months (until October 15th) by filing an extension form (IRS Form 7004 ).” (Source)

+ Do HOAs Need to File a Tax Return?

Corporations are generally required to file taxes. Choosing which form to use for filing is a very important consideration. Read the tips below for choosing the correct tax form for your HOA.

+ Are Home Owners Associations (HOAs) Considered Non-For-Profits?

According to the IRS;

“A homeowners' association that is not exempt under section 501(c)(4) and that is a condominium management association, a residential real estate management association, or a timeshare association generally may elect under the provisions of Code section 528 to receive certain tax benefits that, in effect, permit it to exclude its exempt function income from its gross income.”

Read on for more details.

Tips for Filing HOA Taxes

+ Which Tax Forms Should an HOA Use?

For an entity to request non-profit status, an HOA would typically use Form 1024. However, acquiring that type of status can be expensive and complex. Without a substantial reserve budget, it’s smarter to file Form 1120-H.

A property management company can help you understand which deductions you can claim, as well as organize the necessary forms and documentation to make those claims. Additionally, the property management fees themselves are also tax deductible.

+ How to Fill Out Your HOA Tax Form.

Filing an 1120-H form properly requires careful review. Be aware of your state income tax filing requirements as they can vary accordingly. They differ from Federal requirements, so please consult your community association manager if you have specific questions on your state’s return.

+ How to Account for HOA Reserves in Tax Filings.

Filing a federal return requires Form 1120, which, among other things, implies that an HOA must account for all income it collected during the year. This potentially makes reserve funding difficult.

For example, if X amount is set aside for Project Y, those funds would be taxable if they weren’t spent during the current tax year. In other words, it can negatively impact reserve budgeting, thereby affecting all its allocations.

Because HOAs are distinct from corporations, the IRS has developed Form 1120-H, a single page form that streamlines the filing process for associations. A knowledgeable property management company in Atlanta like Heritage understands this and other tax law like it.

+ How HOAs handle tax exemptions.

An HOA must formally “elect” to file Form 1120-H and it has to be done so on the 15th day of the fourth month after the end of the HOA’s tax year. With Form 1120-H, an HOA is required only to pay taxes on non-exempt income.

Non-exempt income includes:

  • Laundry or vending machine income
  • Interests
  • Rental income from an HOA owned property
  • Dividends

As with any nonexempt tax, the HOA is allowed deductions specifically for expenses directly related to those items listed above. So, for example, repairing a dryer is deductible. The final sum is then taxed at a flat rate of 30%.

Need More Help? Don't Worry!

What is the deadline for HOA taxes?

Heritage Property Management is a full-service Atlanta property management group who can help clarify key elements of your HOA’s taxes and answer your questions. You have a partner in Heritage. Contact us today for a free consultation and proposal.