Homeowners associations are rapidly gaining in popularity in the United States. More and more homeowners are finding the security and ease of being part of a privately governed community appealing compared to the hassle of maintenance. Perhaps your neighborhood is lacking an HOA community, or maybe it has always been your dream to start one. Whatever the case may be, you may be wondering how to start an HOA. Here are a few steps to get you started.
How to Start an HOA the Right Way
Planned communities usually have HOAs already in operation. But if you move into a development that has yet to form its own HOA, you may want to take the task upon yourself. Starting an HOA in an existing neighborhood can be a complicated process, though, especially if you do not know where to begin. To help you out, here are some tips on how to start a homeowners association:
1. Educate Yourself on Laws and Procedures
The very first step you should take when looking to start an HOA is to educate yourself thoroughly on every topic relating to homeowners associations.
This includes becoming knowledgeable about any rules and regulations, local or state laws, and legal steps that must be taken to successfully and legally form and operate an HOA.
It is important to religiously follow these rules in order to form a solid community. Meet with other HOA owners for advice and read as much material as you can.
Your HOA will also need to hire a lawyer to help you out with the legal side of forming and running an association. When searching for a lawyer, make sure to take experience into account. Go for a lawyer who has previously or is currently serving an HOA.
2. Get a Feel for Local Interest
It is also important to do the proper research in the community to see how much interest there is and what homeowners are looking for in your particular neighborhood.
If no one wants to join the association, then there is likely no point in creating one. When starting out, making membership optional is helpful for garnering and maintaining interest.
3. Consider Insurance Early
Many HOAs make the mistake of not insuring themselves properly. In the early stages of forming the business, it is essential to gain protection for your HOA by investing in insurance that protects you from any number of eventualities.
4. Select a High-Quality Team
A homeowners association is only as good as the individuals that run it. The people that you gather together to collaborate on this new and exciting project will have a great deal of influence. Be sure to choose a small but strong core of people who have knowledge, skill, and compatibility with one another.
5. Create Your Governing Documents
This part can be time-consuming, but it is nonetheless a crucial step when you form a homeowners association. There is a handful of governing documents you must write for your HOA, including the bylaws and the CC&Rs (Covenant, Conditions & Restrictions). The CC&Rs are arguably the most vital, as it details the rules residents must follow and how your HOA must be run.
6. Develop a Reasonable but Competitive HOA
When designing CC&Rs, choosing amenities, and planning new structures, there is always a delicate balance between being competitive with other local HOAs and keeping fees low enough to be reasonable. However, through trial and error, you will be able to determine what is truly important to the homeowners in your community and develop an HOA which achieves both of these goals.
7. Establish the Business
Once you have a solid structure for your community, it is time to formally set up a homeowners association and establish the business. Most choose to form a non-profit corporation or an LLC.
While establishing your business, you will be asked to provide a name for your business, pay fees, apply for a federal tax number, draft articles of incorporation, and establish bylaws, among other things.
8. Elect a Board
Once the business is established, it is time to elect an HOA board. This is an extremely important task because the board will set the tone for the community in the future. Here are some tips on how to set up an HOA board:
- Look for Skilled Candidates. Be sure to gather together a group of people who have strong skills in various areas. Search for people who have experience in finance or have knowledge of landscaping or maintenance.
- Passion Is Equally Important. While skills and a great deal of experience are preferred, passion is essential. Candidates who truly care about the community’s well-being should also be considered. Recruit those whose hearts are in the right place.
- Follow a Standard Procedure. If you want your HOA board elections to be successful, you must standardize your election process. This procedure must be found within your governing documents and must be followed for all elections.
- Document Everything. Documentation is one of the most critical parts of electing board members. Should anyone dispute the results, you can refer to your records to resolve the conflict.
The HOA board must fulfill a number of responsibilities for the community. Successful management of the HOA involves keeping accurate financial records, budgeting for operating expenses and the HOA’s future, enforcing rules and regulations uniformly, and maintaining community properties, among other things.
9. Hire an HOA Management Company
While not a mandatory step on how to start an HOA, hiring an HOA management company can be of great help. In fact, most associations partner with HOA management companies to aid them in running the HOA. These companies lighten the load of the board and are even more critical for a budding HOA.
The Pros and Cons of HOAs
When you are first deciding whether to form an HOA or not, your mind will naturally wonder if there are any advantages to having one in the first place. Like most things in life, there are both pros and cons of creating an HOA.
Here are the benefits of an HOA:
- You do not have to worry about maintaining common areas like the community pool, gardens, and clubhouses.
- Services like trash removal, lawn care or landscaping, and security are usually provided by the HOA.
- An HOA helps maintain and improve curb appeal, thus increasing property values.
- If you are in conflict with another resident, you can settle your disputes through the HOA board, which acts as a mediator between and among members of the community.
- You can widen your circle and meet new people, such as your neighbors, at HOA gatherings.
Here are the disadvantages of an HOA:
- An HOA can impose restrictions on renting out your home.
- There are regular assessments — and, sometimes, special assessments — to pay for.
- There are limitations to what you can do as a homeowner, including changes to your own property, and you may have to get board approval before you can act.
Start Your Own HOA Today
Establishing an HOA can be an exciting time for you and your neighborhood. The benefits of an HOA are undeniable and clearly outweigh the cons. While the process is long and requires a fair amount of hard work, it will all be worth it in the end. Just make sure to follow these tips on how to start an HOA, and you will be good to go.
If you are having trouble running your homeowners association, it may be time to follow in the footsteps of other HOAs that came before you. Contact an HOA management company like us for help.
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