A homeowners association has several HOA income sources available to them. Most only know of regular dues, special assessments, and monetary fines, but these can be very limiting. An HOA can earn revenue in other ways without raising fees or levying hefty special assessments. Board members should understand these ways and take advantage of them.
What are HOA Income Sources?
Homeowners associations rely on various revenue streams to fund operations, maintain common areas, and enforce community standards. These HOA income sources include standard fees, special assessments, fines, and other revenue-generating activities. Homeowners need to understand how an HOA collects and manages income. This way, they know where their money is going and how their community is doing financially.
Here are the different sources of HOA income.
HOA Fees
Of all the HOA income sources, regular fees or dues are the primary one. Homeowners pay these fees monthly, quarterly, or annually to cover operational costs. These fees help fund the maintenance of common areas, landscaping, administrative costs, insurance, and reserve funds.
The amount homeowners pay can vary from one association to another. Several factors can influence HOA fees, such as the size of the community, the extent of the amenities, and other needs. Communities with luxury amenities like clubhouses, golf courses, and security personnel tend to have higher fees than smaller neighborhoods with fewer shared spaces.
Special Assessments
In some cases, regular HOA fees aren’t enough to cover expenses. When this happens, the HOA may issue a special assessment. A special assessment is a one-time homeowner fee to fund necessary repairs or projects.
Special assessments typically arise when there is an emergency that requires immediate funding. For example, a natural disaster may have hit the community, requiring emergency repairs not covered by insurance or the reserve fund. A special assessment can also be needed if the HOA has unbudgeted renovations, such as upgrading security systems or repaving roads.
Sometimes, an HOA board might miscalculate the budget for the year, resulting in a deficit. With insufficient money to cover operational expenses, the board must resort to special assessments.
Special assessments can be controversial, especially if homeowners aren’t prepared for the additional financial burden. Board members should understand that special assessments should happen rarely. A well-managed HOA with a smart budget and healthy reserves won’t need to levy special assessments often.
Fines and Penalties
Homeowners associations enforce rules and regulations to maintain property values and order in the community. Residents violating these rules may need to pay fines or penalties. In some states, the HOA board can only charge a fine after providing notice and giving the resident a chance to be heard. One example is North Carolina, under the Planned Community Act.
Some of the most common violations include:
- Parking violations such as illegally parked cars or exceeding guest parking limits
- Noise violations, such as excessive noise during quiet hours
- Architectural changes without approval
- Maintenance violation,s such as overgrown lawns or untrimmed trees
While fines can be a source of revenue, an HOA should not rely on them that way. The primary purpose of fines is to deter residents from committing violations. Board members should not actively look for ways to charge higher fines or bend enforcement procedures just to charge more. The goal is compliance, not generating income.
Rental and Leasing Fees
While it’s common for HOAs to restrict rentals, those that allow them sometimes charge a leasing fee. This is a fee that HOAs charge to homeowners to rent out their units or homes. Because of the negative impact that rentals can have on a community, HOAs typically don’t like them. Leasing fees serve as a way to both discourage rentals and cover the costs associated with rental units.
Several administrative costs are related to leasing and renting. These include processing rental applications, maintaining tenant records, and ensuring compliance with HOA rules. The rental fees charged to homeowners can cover these costs.
Leasing fees can also cover the wear and tear caused by rentals. Tenants usually move in and out of the property, causing damage to floors, walls, and furniture. Some insurance providers also charge a higher premium to communities that allow leasing because of higher liability risks.
Clubhouse and Amenity Rentals
When it comes to non-dues revenue for HOAs, amenity rentals are rather common. Homeowners associations often rent out community spaces to homeowners and outsiders. These spaces include clubhouses, event halls, and pool areas. These rentals generate income that can help cover maintenance costs.
If this is not something an HOA currently offers, it is worth considering. An HOA can allow private events like birthdays and meetings. It can also rent out gym facilities, sports courts, and even parking spaces or storage units (if any). This is a great way to take advantage of spaces that don’t get a lot of use.
Board members should remember to set a reasonable rental rate. It is common practice to offer these spaces at a lower rental fee for residents and a higher fee for non-residents. Amenity rentals expand HOA income sources without raising dues or charging special assessments.
Investment Income and Interest
Not all homeowners associations have a reserve fund. If one does, it is smart to put these funds into interest-bearing accounts. Board members should consider low-risk investments that generate passive income for the association.
With investment income, an HOA can grow its reserve funds without raising fees or charging special assessments. An HOA can also prepare for large-scale repairs or replacements in the future.
Keep in mind that state regulations and provisions in the governing documents may address reserve investments. These ensure that the HOA board manages its reserve responsibly. If the board makes a poor investment decision, it can cause significant financial losses and legal complications.
Sponsorships, Advertisements, and Partnerships
Some HOA communities partner with local businesses or allow advertising within the community. These efforts can generate additional revenue for the association without raising dues.
For example, an HOA can invite local businesses to place ads in the community newsletter for a fee. Businesses can also sponsor community events for exposure or partner with the HOA to offer discounts to residents in exchange for referrals.
Of course, the HOA board must choose partners and sponsors wisely. These vendors and businesses must align with the community’s values and core character. Partnering with a controversial business, for instance, can invite criticism from residents and damage the HOA’s reputation.
Miscellaneous Income Sources
How can HOA generate revenue without raising fees? Apart from amenity rentals and advertisements, an HOA can take advantage of a handful of other income streams.
An HOA can earn extra money by installing vending machines in common areas, charging a guest parking fee, operating a laundry service, and offering storage or bike rentals. Although these tend to provide smaller revenue streams, they can quickly add up.
Good Financial Sense
Homeowners and board members must understand the various HOA income sources. Knowing these options can give associations an idea of how to increase revenue without raising dues or charging special assessments. Homeowners can also know how their HOA is funded and how their contributions are being used.
Clark Simson Miller offers expert financial management services to homeowners associations and condominiums. Call us today at 865.315.7505 or email us at help@csmhoa.com to get started!
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