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.

What is a Reserve Fund and Why Your HOA Needs One

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.