Probably the most important duty that a Las Vegas homeowners association (HOA) board has is the authorization of how the HOA’s money is spent. Homeowners elected to the board have been given this power so that the standard of the community is optimized for not only the present, but also the future. It is imperative that board members know the exact financial status of the HOA and make decisions that are best for the HOA and not them personally.
HOA’s have essentially two major categories of spending, Operational spending and long term capital component expenditures or Reserve spending. Homeowner’s dues go into two corresponding accounts for both types, operating account and reserve account.
Operational Expenses. Operational spending are paid using funds from the HOA’s Operating Account. Examples of typical expenses would be normal maintenance items such as landscaping, on-site handyman repairs, monthly management fees, mailing and postage sent out by the HOA. Emergencies such as a car hitting a community wall would also come out of the operating account. Most of the known, or reasonably expected on going expenses are handled through the operating account.
Reserve Expenses. In most cases, the reserve account holds the majority of the HOA’s money. The reserve account is meant to fund the long term replacement of the association’s major components and cannot be used for normal operating expenses such as legal fees, regular maintenance or monthly contracts. These major components are depreciated over 30 years, meaning monies must be set aside for later use to accommodate the replacement costs of these major expenses. It wouldn’t be fair to future homeowners by saddling them with huge burdens and expenses such as a special assessment by not setting aside money aside or poor community management decisions years earlier.
Given that the majority of the HOA’s assets are held in the reserve account for long term considerations, it is easy to see how spending decisions of the HOA board have incredible importance for the association and its homeowners. I know of a local Las Vegas HOA board that has overspent and only has about two months of money in their operating account and will soon be insolvent. Although this board has been a victim to the recent economic downturn, they also failed to monitor and understand how little money they had in their account and continued to authorize projects that, while legitimate, were inappropriate given the HOA’s lack of funds and should never have been authorized by its board.
HOA boards and their management companies have often tens of millions of dollars under their charge when one considers the values of the homes themselves. HOA’s are actually non-profit corporations and should be run accordingly. If a board member wants to run for a board position simply because they want to get an architectural variance for their home or they have an ax to grind with the board, they need to consider the full scope of what they will be signing up for as a board member. The responsibilities are great and many homeowners depend on them to protect their home’s value and living experience.
Paul Rowe is co-owner of Shelter Management Group (SMG) and is also a licensed property manager. You may reach Paul at Shelter Management Group at 702 818 478 zero and by emailing info @ sheltermanagementgroup. com. You may also complete a contact form via the SMG website.