HOA annual budget template and how to set the assessment

The annual budget answers one question: how much does each lot need to pay so the association can cover its costs and put something aside for big repairs? Here is a straightforward way to build it.

The formula

Per-lot annual assessment =
  (Total operating expenses + Reserve contribution - Other income)
  ÷ Number of lots

Example, for a community of 50 lots: operating expenses of $38,000, a reserve contribution of $8,000 and $2,000 of other income gives ($38,000 + $8,000 − $2,000) ÷ 50 = $880 per lot per year.

Template: income

INCOME
  Regular assessments (lots x per-lot amount)   $
  Late fees and interest                          $
  Amenity or clubhouse fees                       $
  Fines (budget conservatively, or zero)          $
  Interest on savings                             $
TOTAL INCOME                                      $

Template: operating expenses

EXPENSES
  Insurance (liability, D&O, property)            $
  Landscaping and mowing                          $
  Snow removal                                    $
  Utilities (street lights, water, common areas)  $
  Road and common-area maintenance                $
  Pool or amenity upkeep                          $
  Management or bookkeeping                       $
  Legal and accounting / tax preparation          $
  Software, printing, postage, bank fees          $
  Meeting and administrative costs                $
  Contingency (a few percent of the above)        $
TOTAL OPERATING EXPENSES                          $

RESERVE CONTRIBUTION (see below)                  $

Sizing the reserve contribution

Reserves pay for items that wear out on a schedule: repaving, roofs on shared buildings, fencing, a pool pump. List each major component, its expected life, its remaining life and its replacement cost. A simple starting point is:

Annual reserve contribution =
  sum of (replacement cost ÷ expected life in years)
  for each major component

Many states and lenders expect a funded reserve, and some require a professional reserve study. Ask your attorney or accountant what applies to you. Underfunding reserves is how associations end up with sudden, large special assessments.

A sensible timeline

1. About 90 days before the new fiscal year: gather last year's actual spending and any quotes for the coming year.
2. 60 days before: the board drafts the budget and the per-lot amount.
3. 30 to 45 days before: send the proposed budget to owners and hold the meeting your governing documents require.
4. Before the first due date: adopt the budget, record it in the minutes and send invoices.

Tips

• Compare each line to last year's actual figures, not last year's budget.
• Check your governing documents for limits on how much the assessment can rise without an owner vote.
• Show owners the reasons for any increase. A one-page summary prevents most objections.
• If some lots pay different amounts (for example vacant or under-construction lots), say so in the budget and in the notice.