Step-by-Step Guide to Financing an HOA Project

Capital improvement projects can be very overwhelming for Association Boards and Community Association Managers. It is becoming more and more common that HOA's are finding their reserve funds are not enough to cover the costs of crucial maintenance or improvements. That is where financing can become a very useful tool to communities that are being faced with large-scale projects.

By following a clear step-by-step approach, it can provide Board's and Community Association Managers the confidence and knowledge to navigate. This will help make well informed decisions, avoid any delays, and ensure the community is being taken care of.

As we walk through an example of what a Step-By-Step guide looks like, it is important to consider what the goals of your association are. Lets start with Defining the Scope of the Project.

1. Define the Project:

   It is crucial that boards use the resources that are available to them. Refer to Reserve Studies/Engineer Reports, complete a community walk-through and determine the high priority projects that need to be completed. It is important to clearly define what the projects entail. For example, Roof Replacement, Siding Repairs, Pool Maintenance, or Infrastructure Upgrades.

   
   

   Keep in mind, it is typically outside a Community Association Managers scope of expertise to facilitate and manage large-scale projects. Bringing in experts such as Project Managers or Engineers can further streamline the project and ensure it is done correctly. This will help alleviate the required heavy lifting from start-to-finish.

IMPORTANT TIP: When a cost range is established, the Association's Financing Eligibility can be determined based on the provided range.

1. Assess the Associations Financial Health/Association Governing Documents:

   When the Project Scope is defined, it is time to decide how the project costs are going to be covered. Whether that is utilizing reserve funds, implementing a one-time special assessment or financing it is important to have this decided early on to make sure timelines align with Banks, Lenders, Contractors, etc.

   
   

   It is important to evaluate the Associations Financial Health before making this decision. Make sure to review the following when choosing the best method of payment:

   -Current Year / Next Year Operating Budget

   -Association Delinquencies

   -Current Reserve Balances and Budgeted Contribution

   -Additional Projects to be completed within the next 3-5 years / Long Term Large Expenses

When considering the above options, it is very important to review the Governing Documents

to determine what the association has the capacity to implement.

IMPORTANT TIP: HOA Capital can help review an Associations Financial Health to help determine potential loan eligibility and if financing fits the Associations long term goals.

1. Reviewing Association Governing Documents

   It is important to review the Associations Governing Documents to determine what the Board has the authority to do and establish what perimeters are in place when it comes to implementing a long-term special assessment or pursuing financing.

   -Review the Declaration, Bylaws and CC+Rs to confirm the Borrowing Authority if the association is looking at financing.

   -Identify if a membership vote is required to borrow funds, pledge the associations 'personal property' (association cashflow) as collateral or to implement a special assessment.

   -Note any restrictions such as debt limits, collateral, and any project types.

IMPORTANT TIP: HOA Capital encourages having the associations legal counsel review the

Governing Documents to confirm any requirements/perimeters.

1. Engaging Experts

   Navigating a large capital improvement project can feel daunting for any Association Board or Community Association Manager. Engaging experienced professionals early in the process helps ensure that projects are planned correctly, financed strategically, and executed efficiently.

Partnering with experts such as Project Managers, Engineers, and Loan Consultants like HOA Capital can make a significant difference in both the short- and long-term success of a project.

From evaluating the property and developing accurate cost estimates to collecting competitive bids, structuring financing, and coordinating project timelines, the right experts help shoulder the workload and reduce risk for the board. With the expert guidance the association can move forward confidently - knowing that every step is being managed by professionals who understands both the operational and financial side of community projects.

Strong preparation leads to confident decisions. With a clear project scope, financial understanding, and the right experts by your side, your association is ready for the next step. In Part Two of this guide, we’ll outline exactly how to evaluate financing options, communicate with your community, and bring your project to completion — efficiently and effectively.

-McKenna Yeager

HOA Capital, Senior Consulting Associate