Condominium associations are responsible for maintaining common areas and managing community projects, such as risk mitigation and large-scale exterior renovations. Keeping common areas well-maintained helps increase property values in the community. A condo association management company offers services like financial management to make sure projects receive proper funding. Here are three funding types management teams may use for condo community projects:
1. Assessments
Part of the association’s role is to create a budget to cover community expenses. Budget planning includes forecasting expenses and planning for major repairs. The main source of revenue for a community tends to be assessments. Assessments refer to the dues paid by the homeowners in a community. The total amount of anticipated expenses for the community is divided, and each homeowner pays a portion. Dues may be divided equally or assigned depending on factors such as access to and use of amenities. The community’s governing documents determine the allocation of all expenses.
Assessment fees cover the community’s administrative costs, such as insurance premiums or retainers for a condo association management team. Management teams will evaluate the community’s finances to determine which expenses and projects can be addressed immediately. These projects may include installing amenities such as security systems or scheduling regular maintenance for pools and lawns. Assessments also help communities pay for the repair and upkeep of shared elements such as roofs, hallways, and elevators.
Special Assessments
If the condo association requires more money for a specific expense, it can charge the residents a special assessment. A special assessment is a one-time payment that residents make to cover unexpected costs or planned expenses. The association is responsible for the timely collection of assessments and fees from homeowners. If homeowners do not pay their assessments, management teams handle the remediation process to collect late fees.
2. Reserve Funds
Reserve funds are factored into the community budget by saving assessment payments for projects such as amenity repairs, roof replacements, and exterior painting. A community management company conducts a reserve study to determine how much money should be placed into the reserve funds. Some states require associations to complete reserve studies annually to maintain financial transparency.
An independent reserve specialist performs this study, which is a budgeting tool used to determine the expected lifespan of a community’s common elements. The study’s reports include anticipated replacement costs, including labor, materials, and permits. The reserve specialist will develop a funding plan with annual estimates for the reserve fund. Researching the financial plans of similar communities can help communities establish reserve funds.
While reserve funds are typically reserved for planned expenses, the condo association board may decide to use them for emergencies that require immediate repairs. These emergencies include HVAC repairs during cold snaps or heat waves, life-threatening equipment replacements, and roof repairs from fallen trees. Communities can choose to charge a special assessment instead of using their reserve funds. Maintaining clear communication with residents about funding with residents allows them to play an active role in their community and express their opinions on the community budget. After the board approves the budget, communities must hold a budget ratification meeting, where homeowners vote to approve it. The vote allocation for approval is determined in the governing documents.
3. Investments
A potential source of revenue outside of homeowner assessments is investing part of the reserve fund for additional returns. The community’s governing documents usually place limitations on investments, but investments that follow the community and association rules can provide a buffer for additional expenses. When selecting an investment plan, assess factors like its safety, liquidity, and yield. Discuss potential investment strategies with a community association management company to learn about each plan’s potential benefits. The management company’s financial experts will offer guidance on smart investment strategies. They can also advise the board on other financial decisions for the community and confirm that expenses are appropriately distributed.
Explore Condo Association Management Services
A condo association management team provides financial managerial assistance, allowing the board to focus on planning condo projects. Depending on the type of management service you select, the team can help your board create a custom-tailored budget and prepare financial reports on your behalf. An experienced accounting team will track your expenditures and cash flow. Other economic and managerial services include collecting fees from homeowners, paying invoices, assisting with project planning and coordination, and helping with complex insurance claims. Contact a community association management company today to learn more about their services.
