Budget Essentials
Creating an initial budget for new development
We know that creating an initial budget for a new development can be a difficult task. Forecasting the first year’s income and expenses as well as the build out income and expenses (which could be years in the future) is like walking on a tight rope….go too far one way or the other and you can have a disaster on your hands. With careful planning and attention to a few specific budget rules, you can better prepare the association for financial success from the very beginning.
Keep it Real
Keep in mind that establishing a realistic budget will allow you to set the correct amount for dues in the first year of the association and at build out. Do not create an unrealistic budget or set the dues at an unrealistic low amount. It only hurts the developer’s reputation and frustrates each owner. Many times associations are left having to struggle for years because the developer set the dues too low.
Consider Everything
Take time to really contemplate the scope and services of the association. Typical expenses include everything the association must pay for including but not limited to electric, water, administrative costs, general maintenance, management, accountant fees, landscaping, insurance, taxes, legal fees, and capital reserves. If an association has a pool, a gate, or other amenities, the budget will need to include expenditures for maintaining those items as well.
A sample budget showing expenses for a homeowners association with 100 homes in a gated community is listed to the right. Please note that these numbers will vary based on common area and additional amenities. The following budget is just a sample and is for informational purposes only.
Start with Expenses
When calculating the dues for the association, it’s helpful to start by listing the expenses first. It’s always a good idea to estimate all expenses on the high side. If the expenses come in lower, the surplus money can be saved for future expenses. Remember, a financially healthy association will ultimately help sell homes. A community that has sufficient funds to properly maintain the common areas will be more appealing to potential home buyers. After you complete the expenses, you can then determine a realistic assessment amount that will sufficiently fund the association.
Set the Dues a Little High
It’s better to set the dues a little high at the beginning and have enough money to properly maintain the community, rather than to set dues too low and have to face a dues increase within the first few years of the association. If you find that you consistently have a surplus of money in the account at the end of the year, you can always lower the dues.
Spectrum Association Management, LP offers this information for educational purposes only and not as legal advice. The information provided in this article does not create a client relationship between you and Spectrum Association Management, LP, nor is this article a substitute for legal advice. The contents of this article are subject to change without notice. You should not rely or act upon the contents of this article without seeking advice from your own attorney. Spectrum Association Management, LP is not a law firm.
Spectrum Association Management, LP provides information in this article as a general resource to clients and other interested readers. By making available access to this article, (i) Spectrum Association Management, LP is not purporting to render legal or other professional advice or opinions on specific facts or matters and (ii) Spectrum Association Management, LP is not creating or intending to create a client relationship between you and Spectrum Association Management, LP.