Preparing an HOA budget is about more than making next year’s income equal next year’s expenses. A responsible budget should cover the association’s expected operating costs, prepare for major repairs and provide the board with enough flexibility to respond when expenses do not go exactly as planned.
Unfortunately, many HOA boards begin with the current budget, increase a few line items and assume the job is finished. That approach may keep assessments unchanged temporarily, but it can also leave the association unprepared for rising insurance premiums, aging infrastructure and unexpected repairs.
Here are the areas North Texas HOA and condominium boards should consider when preparing their 2027 budgets.
Begin With Actual Financial Results
The current budget is only a prediction. The association’s actual income and expenses show what really happened.
Before preparing next year’s budget, compare the current year’s budget to the association’s year-to-date financial statements. Look for expenses that are consistently higher or lower than budgeted.
Questions to ask include:
- Are utilities exceeding the budget?
- Has landscaping or pool service increased?
- Are repair expenses becoming more frequent?
- Is the association collecting all the assessments it billed?
- Are legal, collection or administrative expenses changing?
- Were any expenses postponed rather than eliminated?
A budget should be based on current financial information—not assumptions carried forward from several years ago.
Obtain Updated Vendor and Insurance Costs
Boards should not assume current contract prices will remain unchanged, but reaching out to a vendor about their pricing in the next year can signal to them you are expecting an increase and sometimes you DO get what you ask for! Review the contract first for expiration dates, automatic renewals, escalation clauses and notice deadlines. For contracts renewing soon, ask the vendor to confirm renewal terms in writing. For contracts that end after 2027 assume the same contractual amount.
Insurance should also receive careful attention. Associations should request renewal estimates early enough to include a reasonable figure in the budget. Using last year’s premium without accounting for market changes can create an immediate shortfall when the policy renews.
When an exact amount is not yet available, the board should use a reasonable estimate and document how it was calculated.
Separate Operating Expenses From Reserve Expenses
Operating expenses are the association’s normal, recurring costs. These may include:
- Landscaping
- Utilities
- Insurance
- Management
- Pool maintenance
- Routine repairs
- Administrative expenses
- Legal and accounting services
Reserve expenses are generally associated with major components that wear out over time, such as roofs, private streets, fences, pool equipment, building exteriors, irrigation systems and mechanical equipment (boilers, chillers
Keeping these categories separate helps the board understand what it costs to operate the community today and what must be saved for tomorrow.
Do Not Treat Reserve Contributions as Optional
Reserve funding is one of the most important—and most frequently reduced—items in an HOA budget.
A reserve contribution is not extra money left over after every other expense has been paid. It should be a planned expense intended to fund predictable future repairs and replacements. We suggest budgeting this monthly and proactively setting up automatic bank transfers to ensure those funds are moved to the reserve account throughout the year, not at the end of the year.
For example, if a community knows that a private street, roof or perimeter fence will eventually need replacement, the board should be saving toward that expense over the component’s useful life. Without adequate reserves, future boards may be forced to impose a special assessment, obtain financing or postpone necessary work.
A professional reserve study can help identify the association’s major components, estimate their remaining useful lives and recommend an appropriate funding plan. As we discussed in our earlier article, Self-managed HOA Boards and Reserve Studies, an association cannot create a truly informed long-term budget without understanding its future maintenance obligations.
Account for Delinquencies
A budget based on collecting 100% of all assessments may be unrealistic.
Most associations experience at least some late or unpaid assessments. The board should review its collection history and consider an appropriate allowance for delinquent accounts.
This does not mean the association should stop pursuing unpaid balances. It means the board should avoid committing to expenses based on income it may not receive during the budget year.
A sound collection policy, consistent follow-up and accurate owner statements can help reduce the effect of delinquencies on the association’s cash flow.
Include a Reasonable Contingency
Even a carefully prepared budget cannot predict every expense.
Water leaks, storm damage, emergency repairs and unexpected vendor increases can happen during the year. A reasonable operating contingency gives the board some flexibility without immediately using reserve funds or postponing other obligations.
The appropriate amount depends on the association’s size, responsibilities, available cash and history of unexpected expenses.
Review Assessment Authority and Approval Requirements
Before increasing assessments or adopting a special assessment, the board should review the declaration, bylaws and applicable Texas law.
The governing documents may:
- Limit annual assessment increases
- Require homeowner approval above a certain amount
- Establish notice requirements
- Specify how assessments are allocated
- Distinguish between regular and special assessments
For many Texas subdivision associations governed by Chapter 209 of the Texas Property Code, board action involving a proposed increase in regular assessments or adoption of a special assessment must occur at a properly noticed open board meeting.
Condominium associations may be governed by different statutory provisions and declaration requirements. Because every association’s documents are different, the board should consult the association’s attorney when there is uncertainty about its authority or the required approval process.
Avoid Balancing the Budget by Postponing Reality
Boards understandably want to keep assessments affordable. However, holding assessments artificially low does not make the association’s obligations disappear.
Common warning signs of an unrealistic budget include:
- Using reserve funds for routine operating expenses
- Eliminating reserve contributions
- Ignoring known repairs
- Underestimating insurance or utility costs
- Assuming every assessment will be collected
- Deferring maintenance without considering the long-term cost
- Budgeting income from fines or late fees as though it were guaranteed
If expenses have increased, the board may need to reduce services, renegotiate contracts or increase assessments. The best decision is the one that protects the association’s financial stability—not necessarily the one that produces the lowest assessment next year.
Explain the Budget to Homeowners
Assessment increases are rarely popular, but clear communication can reduce frustration.
When presenting the budget, explain:
- Which expenses increased
- What services the assessments fund
- How much is being contributed to reserves
- Which major repairs are being planned
- What cost reductions the board considered
- What could happen if funding is postponed
Homeowners may not agree with every decision, but they are more likely to understand an increase when the board provides specific information instead of simply announcing a new amount.
Start the Budget Process Early
A rushed budget is more likely to overlook expenses, rely on outdated estimates or miss notice requirements.
Beginning several months before the new fiscal year gives the board time to review financial results, obtain vendor estimates, evaluate reserves, consider assessment changes and communicate with homeowners. We provide our boards a budget draft by the end of October, so they have the month of November to dial it in before the board adopts it and publishes in the HOA portal to the owners.
PMI Metroplex Properties assists North Texas HOA and condominium boards with budget preparation, financial reporting, reserve planning and assessment collection. Whether your community needs full-service association management or financial support for a self-managed board, we can help your board build a budget based on the community’s actual needs.
Contact PMI Metroplex Properties to discuss your association’s 2027 budget and management needs.
This article provides general information and is not legal or accounting advice. Associations should consult their governing documents and appropriate professional advisers before adopting a budget or changing assessments.
