It is not uncommon for HOA communities to feel like they need more income to accomplish all their goals. However, there is a difference between needing more money to complete lots of projects, for example, and not having enough funds to meet potential financial obligations. According to industry research, over 70% of association-governed neighborhoods do not have enough funding, and are in need of assistance with correcting the problem.

The Research

The conclusion above was reached at the end of a study that analyzed 30,000 reserve studies prepared by Association Reserves, Inc. at the end of a 21-year period running from the beginning of 1992 to the end of 2012, using calculation standards for reserve fund strength implemented in National Reserve Study (NRS) standards. According to the study, the number of association-governed neighborhoods that are insufficiently funded increased 12.5% over the past ten years. The study also concluded that:

• From 1992-1994, 62% of association-governed communities were underfunded.


• From 2000-2002, 59.5% of association-governed communities were underfunded.


• From 2010-2012, 72% of association-governed communities were underfunded.

A community is considered insufficiently funded when its reserve fund strength at the beginning of the fiscal year is less than 70 percent. This means the amount of money in a neighborhood's reserve account is less than 70 percent of what is needed to match the €current common area deterioration.€ For neighborhoods that are significantly underfunded, the problem typically exists from year to year due to a variety of economic factors in the community and beyond.

How to Correct Underfunding

Underfunding is typically corrected by several activities, the most common of which being: better collection of late assessment fees, raising assessment fees if needed, prioritizing projects instead of performing multiple projects at once, and using HOA management services to provide financial advice and manage vendor contracts. For many neighborhoods, the best first move is hiring a provider of HOA management services to devise a strategy to correct the problem of poor funding.

Address the Problem Now

If your HOA community is underfunded, now is the time to address the problem. For many neighborhoods, underfunding eventually results in the inability to cover important, unforeseen costs, such as expenses for storm damage repair, legal fees, and expenses for meeting new zoning rules. For assistance with developing a strategy to prevent your neighborhood from being insufficiently funded, contact a provider of HOA management services in your area today.