Understanding Your Association's Expenses

HOA Finance Owning a home in an association

The expenses your association incurs play a vital role in the financial backbone for your community association. They affect your Net Income, Future and current Budgeting, financial standing and are planned to be spent on the betterment for all of the residents within your association. Understanding what your expenses are and the significance of having financial control over your spending is very important to every homeowner within your association.

Expenses consist of the cost of goods and services used to operate and maintain property. Typically, there are three types of expenses for community associations. First your Operating expenses are those that occur on a regular basis such as the utilities, insurance, and administrative costs. Secondly, not as common but just as important are the Major improvement expenses. Major improvement expenses consist of items that are not necessarily required, but are added to improve the overall life for the residents in the community or to enhance the value of the community association. These typically last more than one year and involve a large amount of funding for the community association. Examples of major improvement expenses are the addition more picnic areas, or adding additional street lights.
The third form of expense is your replacement fund expense. This consists of funds set aside to a reserve for the replacement of major components of a community’s common property. Typically, the replacement fund might be used to replace asphalt paving, sidewalks, roofs, central heating and cooling plants, swimming pool, tennis courts, elevators, and many other varied property components. When adding a major item it will be a major improvement expense. When replacing that major improvement item as it deteriorates, this will come from the replacement fund.  These two expense items are ones often overlooked when planning and spending occurs, and if not accounted for can be very costly mistake if proper financial control over your association is not implemented.
Written by: Madeleine Logan, Cedar Management Group