is there any guarantee hoa won't just make up random numbers?

Question

I understand the cons of hoa. I know they are all crooks and steal all the money they collect. not here to debate that. but let's say I find a condo where the hoa fees are very reasonable. let's say it's $300 a month not some crazy amount like $700 a month. at first, it looks attractive. but do I have any guarantee that every few months they won't pull a random number out of their ass ($5000) to "fix" the elevator (which is not even broken)?

Richard F. · Answer

Obviously you have no clue how HOA's are supposed to work. I suggest you check for a local chapter of the Community Association Institute and attend some of their seminars or check for their online resources.

To directly answer your question, typical  HOA's are governed by their own unique "bylaws" and associated documents. These typically mandate that a Board of Directors or a similar group of Owners within the project get elected for staggered multi-year terms. The Board, and the Board alone, determines and approves an annual budget to establish the monthly maintenance fees charged to all owners. This may be an equal amount, or it may be based on a percentage of ownership when there are different floorplans and configurations.

The annual budget should have contingency funds built in, to cover relatively minor expenses over and above the planned  and recurring activities for the project, such as groundskeeping, elevator maintenance, maintaining sidewalks and parking areas, and other "common" elements available for all owners to use or access.

The annual budget also includes an amount for funding a "Reserves" plan. Reserves are supposed to be carefully calculated and accurately estimated based on the actual expected life of each major element of the project. Roofs, Siding or exterior paint, major tree trimming, signage, streets and parking areas if part of the project as well as the lighting for those areas; utilities for common areas as well as very often water for all; elevator upgrades or replacement; plumbing supply and waste lines that serve more than one unit; and many other elements.

The "approved" budget IS the authorization for a third party Management Company to pay the invoices for each line item category out of the operating account. In years where a major element is to be replaced or updated, there should already be funds allocated for that specific item in the reserves, which can then be transferred to operating to pay for the repair.

The problem that is far more prevalent than HOA Boards "stealing" owner funds is a lazy or incompetent Board that fails to plan to reasonable numbers, or in many cases actually chooses to NOT properly fund the reserves, since that increases the monthly fee. Some Board members believe their job is to "keep fees low", when in fact their Mandate, per the By laws, is to Maintain, Protect, and Preserve ALL of the "common elements".

One last point, it is, well, pointless, to compare the monthly fee to ANYTHING else...not another project, not what you perceive to be a "fair" amount, or really anything else at all. Every project is unique. Ages are different; materials and products used vary greatly; preventative maintenance practices vary; number and type of elements that are HOA responsibility vary; Vendors and their scopes of work vary; Governing documents vary...some actually DO require membership approval of budgets or special assessments, and some limit annual increases (very bad idea); Board members vary in their interpretation of what should be done and how; members vary from overly involved and being a royal PITA, to only speaking up when a "Special Assessment" lands in their mailbox.

There is much to learn if you think you want to invest in condo/HOA properties. The financial reports are complex, and if you do not absolutely understand them and how they relate to your specific project, they are useless. And just to be clear, just because someone is RE Agent, or has owned a condo/HOA, does not mean THEY understand the truth that the reports and documents will reveal.

I am happy to review actual documents and reserve funding plans if you have some to share. I am now retired, but managed a number of HOA/COA projects over the past 10 years.

Pouyan Broukhim · Answer

As an owner, you are entitled to request the association’s financial documents, which typically include the annual budget, balance sheets, and reserve studies. Reviewing these documents provides transparency regarding where funds are being allocated and whether the board is properly maintaining the property's assets.

Key Financial Documents to Request:

*   **Annual Operating Budget:** This outlines anticipated recurring expenses like landscaping, management fees, and utilities.

*   **Reserve Study:** This is a long-term capital budget that predicts the useful life of major components (roofs, elevators, siding) and calculates how much money should be set aside annually to replace them.

*   **Balance Sheet:** This shows the association’s current assets, liabilities, and, most importantly, the actual cash balance in the operating and reserve accounts.

*   **Monthly Financial Statements:** These track actual income and expenses versus the budget throughout the year, allowing you to identify any red flags or unexplained spending.

*   **Meeting Minutes:** Reviewing the minutes from board meetings can reveal discussions regarding upcoming projects, potential special assessments, or any ongoing vendor contracts that might explain sudden cost increases.

Bill B. · Answer

Ps. The HOA’s are made up of owners on properties in the community and don’t make money or pay their members. There is no profit to steal. In Vegas I have seen invoices for the gates to the community run $100k, or the tiniest little playground retrofit fo safety after it’s 20 year lifespan run $300k. We’ve voted to replace a gate with a fence or a playground with a dog park when 60 homes don’t want to pay $1,500 or $5,000 for something they don’t own. In MN I belong to a 6 unit “HOA” on the water. (It’s actually only 3 townhomes.) So when we have to replace the roofs (Owned by the HOA) it’s $6k per person as the HOA pays half out of reserves. Decks out to the water? Our half is $15k.  A block of new road, a cut-de-sac and driveways? $20k. This year it’s just a new post office approved, locking, theft proof mailbox system out on the main road. That’s only $1,500 each.

I get it. I pay more than a dozen HOAs every month and my DREAM is I never hear from them.  I’ve just flushed the money, that’s the dream.  But you get certified and reviewed financials and CC&R’s before you purchase with a review period. And if you’re that kind of bored you can easily get elected to the board as almost nobody wants it. Me and my renters are literally the only non-board members of my MN HOA. :-). Ps. They’re collecting almost $4k/month for those 3 townhomes with 6 units. And they’re not making any money. Insurance is INSANE in the commercial space. And property taxes aren’t any better.

JD Martin · Answer

HOAs can be mismanaged but in reality, if you take a look at the way HOAs budget it will give you a reasonable idea how *you* should consider budgeting for any rental property - taxes, utilities, capital expenses, management, etc. An HOA is only as good as the way it's constructed and the people that serve on the board. It only takes a few minutes to review an HOA's budget to see what they are spending their money on and how much they need to bring in.

Chris Seveney · Answer

@Ross Kane - no expenses would not be $28,000 per month, but they will put money in reserves for things like:

- new roof

- HVAC systems

- paint

- carpet

- flooring

- windows

- exterior

- driveways

- parking lots

- and other major ticket items that they'll need money for down the road

Things like insurance are expensive, and then maintenance contracts on things like landscaping and others do add to the cost. You should provide a budget and expenses for the current and prior year, and ask if there are any special assessments as part of purchasing.

Ross Kane · Answer

thank you, richard. now i appreciate the complexity of the matter more. still, to me, the math ain't mathing. let's say there is a building with 40 units, each unit paying $700 a month. are you telling me such a building has $28,000 a month in expenses? on top of that, every few months they make up random numbers. $5000 to fix an elevator which was not broken to begin with. it's extortion and i think they steal most of it. time to look for a house with no hoa. (i know i know "wait til you find out how much it costs to maintain a house")

is there any guarantee hoa won't just make up random numbers?

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