How do HOAs Collect and Spend Money?

HOAs and condo associations collect money from their members through dues payments, and such dues are then used to provide services to the association's resident members. HOA and condo management companies charge only a portion of those collected dues as management and association fees. Let's do a high-level example.

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Acme HOA has 100 member units. As set forth by its association board, it charges its members $200/month in dues. The total dues collections over the course of the year by Acme HOA are thus $200 *100 units *12 months = $240k. That figure represents, simply, the HOA's annual budget. Dues may increase over time as the Acme HOA board deems suitable.

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Acme HOA runs a bid process to select a management company and hires ABC Mgmt Co at a contracted price of $18k per year, or $1.5k per month. That $18k represents $15/month for each homeowner ($15 * 100 units * 12 months = $18k).

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Hence, over the course of the year, Acme HOA will collect $240k from its members and disburse $18k to its management company. Given the $18k management fee is not appropriate for hiring a dedicated individual full-time, Acme HOA will likely receive a portion of an HOA manager's time from ABC Mgmt Co. That manager would oversee several HOAs in order to generate enough revenue to offset his/her salary and create a margin for ABC Mgmt Co.

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The remaining $222k of HOA dues collected at Acme HOA will cover a variety of expenses such as maintenance and repairs, common area utilities, HOA insurance policies, and reserves. Reserves are set aside for future repairs and projects.

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To the extent Acme HOA runs into financial constraints due to issues that may include (1) inability to collect HOA dues, or (2) significant unforeseen expenses, Acme HOA may choose to utilize a variety of remedies, including but not limited to (i) cutting costs, (ii) increasing dues, (iii) implementing a special assessment to its members, (iv) utilizing the reserve account, or (v) seeking a loan from a banking institution.