Annual budget guide for condo and homeowners associations

Date Published : Oct-06-2021

Written By : Phillip Livingston

Towards the end of each calendar year, condo and HOA communities will direct their focus to the future and begin to prepare the annual budget for the year ahead. While budgeting is undoubtedly one of the most challenging aspects of serving on a board, it’s not impossible.

As with any difficult task, it helps to approach this job in different stages and take it one step at a time.

When funds aren’t managed properly, the association ends up having to issue special assessments, or take out a loan. Both options cost owners money that they didn’t plan on spending. To avoid financial uncertainty and upsetting owners, a realistic budget is necessary.

Your budget is meant to ensure that you’re adequately prepared for the year. Read on for helpful tips on how to properly manage your HOA or condo association’s annual budget.

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The first steps

An HOA or condo association budget is primarily made up of two sections; an operating section and a reserve section, as required by law.

The operating side requires that you start at a zero-base point. This means looking at your fixed contracts which are those contracts that you’re legally bound to, followed by special projects and other anticipated expenses.


Who should prepare an HOA or condo association budget?

Regardless of whether the community has a property manager or not, the ultimate fiduciary duty to prepare a budget is with the board. After all, the property management company is just another vendor. That being said, property managers will often have the annual budget prepared for the board. Board members must still review it carefully to ensure it is realistic and accurate.

So, who takes care of this task in a self-managed community? While board members are performing an essential role by volunteering to serve the community, they may not have the expertise or background needed to complete certain tasks. Keep in mind that board members are your neighbors, and they’re working people with busy lives just like you.

Some boards may be lucky enough to have a CPA member who will act as the treasurer, but most associations aren’t so lucky. If that is the case, boards will often hire an accountant or book keeper for this job.

Maintain a reserve

Keep in mind that an association is essentially a business, and should be run as one. It’s imperative that every association have a reserve. Yes, that means owners pay more in fees. But it also provides your community with a safety net. It also shows responsible governance.

What is a reserve fund?

A reserve account is not intended for day-to-day expenses:

  • It’s a fund for planned future expenses
  • It’s a rainy-day fund for major unexpected expenses that cannot wait, such as a broken elevator or a boiler that breaks in the middle of the night

Boards must consider the following when planning for a reserve fund:

  1. The remaining useful life of the components
  2. The ability to get financing
  3. The rate of return on the investment
  4. The financial impact on homeowners

Reserve funds are different from operating funds, which are the day-to-day funds that are used for utilities, minor repairs, trash removal, insurance and all of those regular recurring expenses needed to keep the association operating normally throughout the year.

State laws generally regulate how and when an association can remove funds from reserve accounts. It’s generally a requirement to have an earmarked capital improvement first before removing funds from a reserve account.

This means the association should get a quote from a vendor, vote and approve the capital improvement first. Only after this process can the board proceed to move funds from the reserve fund account to the operating account to pay the vendor.

It’s advisable to prepare a document known as a “reserve study”, showing the CPA number of estimated capital improvements and costs. This amount is usually allocated into a long-term timeframe that shows sufficient long-term planning for capital improvements.

Ideally, a condo association should have a 30-year reserve study that gives you a comprehensive view of all items. It’s easier to understand if there is a column for each of the years following a five-year increment increase, up until year 30.

A lot of communities update their reserve study every five years, but a lot can change in five years. The roof could cave due to an unexpected hurricane, costing your association hundreds of thousands of dollars. Even worse, owners will be asked to foot that bill. As such, communities may want to have a reserve study completed once every 3 years, especially if the association is older, or very large.

When you have your first formal reserve plan done, you need to be aware that that isn’t the end of it. Different items deteriorate at different speeds, and they’re impacted by a variety of uncontrollable factors. An extended period of severe weather could accelerate the deterioration of exterior elements. Conversely, if your association has an aggressive preventive maintenance program, you may find the components last longer than your initial projections. The economy may also impact interest and inflation rates which will change your annual income totals available. So, you need to review the financial portion of the study every year with respect to changing economic conditions.

One of the easiest ways to figure out replacement costs in advance is to hire a reserve analyst who will determine the cost so that you can budget according to accurate figures. For instance, if you’ve been painting the roof for $10,000 each year and a reserve analyst comes in and says that it actually costs $20,000, you’ll have to increase assessments in order to meet that figure. However, doing a yearly reserve study makes for better preparation so you don’t run into any surprises or special assessments down the road.

Follow your budget reserve rules

There are a lot of rules on when you can and can’t spend reserve funds, and it’s important to follow those line items. Some associations only use reserves for roofing, painting and other line items. However, other associations vote to give the board the authority to use that money for different purposes so long as it’s an emergency.

Look at your documents too, because sometimes they have stricter rules than was local laws dictate. You have to be a stickler for details when managing an association and its budget.

It’s also a good idea to consult with an attorney to find out what percentage of unit owners need to be present in order to include reserves in the condo association budget. For instance, Florida law states that unit owners have to vote on adding reserves to an HOA budget.

If you fail to involve unit owners in the process, you might find yourself with an unexpected lawsuit. It’s important to obtain a formal vote from the owners before you include reserves in the budget.

Financial reporting

Financial reporting is a joint effort between the board, the management company, and the accountant that the association has hired. But, a lot of boards would rather not get involved and may leave all financial issues for the treasurer.

Even if you don’t have financial experience, financial reporting is a legal necessity so all board members should be involved in some way.

If you have 50 or more units with an income of $150,000 or less, you can get away with doing cash receipts and cash disbursements. But, if your association has revenue of between $150,000 to $300,000, then you’ll need to do a compilation. A compilation involves taking the association’s financial statements and separating them into a balance sheet, an income statement, and footnotes, as required by law.

Financial reviews are a requirement for associations that have an income of $300,000 or more. It consists of inquiries about account balances and budget procedures, as well as a comparison between the current year and previous years’ budgets. All of this is part of the financial reports that must be presented to residents during an annual meeting.

Not everyone will attend the meeting. But owners still have the right to see these reports. The association may consider sending reports digitally.

An increasing number of associations are actually putting full financial statements on their websites, so it’s quite commonplace. Note that it is a best practice to put these documents on the password-protected section of the website. Condo Control, cloud-based property management software, comes with a budget mail-out feature. This allows you to digitally mail out your association’s yearly budget effortlessly. The mail-out template is provided for you and you can even schedule the budget mail-out date so that it reaches people at a time that they’re most likely to read it.


Every association needs an annual audit, completed by a third party. This means you must involve attorneys, analyze invoices and meeting minutes to make sure everything is congruent. Management companies usually do the financial reports, sum it up and send it to the association. But the audits and reviews must be conducted by an outside certified accountant.


Insurance is another essential when preparing an HOA or condo association budget. It’s important to build a healthy fund balance so that when your insurance premium is due, you can just pay it without asking for assessments. A lot of associations also have insurance deductibles set aside in case of emergencies.

Putting a cap on fee increases can hurt an association because you never know when your expenses are going to go up, or by how much. Your insurance rate might triple overnight and if you can’t increase your fees, you’ll need a member vote to assess it. This will obviously put you on the back foot financially and affect your association’s ability to operate.

Choosing vendors

One of the board’s responsibilities when preparing a budget is to select vendors. While you might be tempted to take the lowest bids from vendors, it’s better to go with the person or company who will provide the most value for what they are charging. Be prudent, shop your vendors, and consider different options. Don’t forget to check things like insurance and other protection measures from your vendors.


Tips for HOA or condo boards

If you find yourself serving on a board that is grappling with debt issues, the best thing you can do is conduct a full review of the situation to figure out an efficient way forward.

Of course, you have to educate yourself as a board member, and there are plenty of resources that you can use, particularly from association organizations.


How to create condo association budgets

Here are some tips on how to create a budget that will set your association up for success, based on all the information provided in this article:

  • Make a budget – A lot of associations still fall into the trap of not creating a budget in preparation for the coming year. It’s important to review the budget around the same time each year. Keep in mind that costs won’t remain the same every year.
  • Review the history – Look at the financial history of your association. Always review the last two budget plans to fully understand where you are and where you want your association to be. Compare monthly and yearly budgets and make provisions to ensure the association doesn’t get into bad debt.
  • Prioritize projects – All projects or future repairs should be prioritized accordingly. You must differentiate between association needs and wishes and remove any potential liability or responsibility before you explore any proposed community beautification.
  • Increases in utilities – Gas, electricity and water costs are always rising. That’s why it’s a good idea to research local and municipal rates so that you’re prepared when utility costs are set to increase.
  • Supplier contracts – You should ensure a proper budget for all regular monthly service providers. Be sure to contact your property manager, pool contractor and landscaping company, to find out if they plan to increase their rates.
  • Budget reserves – When preparing the budget, an association must ensure that a fraction of their income goes to the reserve account. The actual amount varies according to the association. Some associations will put as much as 20% of their total revenue into reserves. It’s important to remember that condo associations have a great financial obligation including outdoor repairs and maintenance of major building systems. The latter includes things like roof repairs, boilers, HVAC systems, etc. Not having budgetary reserves might force you to request major special assessments in the future, among other problems. A good rule of thumb is to prepare for at least two major equipment breakdowns at the same time. For instance, a roof replacement and elevator replacement.
  • Cover insurance deductibles – Make sure you’re aware of the franchise levels for the various elements of the association. For instance, if a roof replacement costs $500 per building for 10 buildings, then you’ll need money available to cover that expense.
  • Calculate legal and collection costs – Legal and billing fees can increase very quickly, but this depends on your association’s collection strategy. For best results, check your current system to see if there are any improvements that you can make to achieve better efficiency and ROI.
  • Special assessments for special projects If your association is struggling to cover expenses due to poor cash flow, then you need to increase monthly or quarterly dues. Keep in mind that special assessments are just that – special! They’re not meant to pay your association bills. They’re mainly intended for urgent need or in case of emergencies, not to pay the utility bill.
  • Stay on course – A lot of associations struggle to stick to a yearly budget because they want to improve landscaping or introduce new and enhanced safety systems etc. However, it’s important to remember that your association put together a budget for a reason and you should follow it as closely as possible.



Creating an effective budget is essential to maintaining a fiscally responsible association. Even struggling associations can achieve financial fitness in a reasonable period of time by making minor changes.

For the best results, it’s advisable to start working on your budget from quarter three instead of quarter four. The earlier the better.

If you follow the tips provided in this article and continue to evaluate and adjust over time, your community will prosper.


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