How to Rescue a Struggling Homeowners Association
Where to start?
Is your Association struggling?
This is a primer for board members of associations that are struggling to make ends meet. Fixing a struggling homeowners association (HOA) requires time, patience and active leadership. Don't expect your management company to figure it out. Real solutions begin with an understanding of what went wrong.
Two documents will tell you if you are struggling and where the pain points lie.
1) The Reserve Study. This tells you the amount required in reserves to be considered "fully funded" and the amounts needed to get there. Look at the percent funded and the recommended contributions needed to reach full funding.
2) The Annual Financial Report. This tells you how much is in reserves at the end of the year and whether the Association is running deficits or surpluses in the Operating Account, with details by budget category.
Your HOA is in trouble if reserves are inadequate to cover anticipated near-term maintenance, if deferred long-term maintenance costs far exceed projected reserves, and/or your annual operating costs are running your budget into deficit territory.
If your Association is running deficits, it's time to take a hard look at reining in spending. You can manage costs by improving bidding processes and doing away with sole-source contracts. Competition brings prices down and quality up. You can also ensure that contracts protect owners, reduce liability and ensure work is performed on time and within budget. Actively monitor and cut spending to better align income and expenses.
This site summarizes the steps we've taken to rescue our struggling HOA. Your strategy will likely be different, but we have made tremendous progress and are seeing light at the end of the tunnel for the first time in many, many years.
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Elizabeth DeSouza Ph.D. is a retired professor and business consultant. She currently serves as President of her local homeowners association.