Planning HOA capital improvement projects is almost an art form. It requires considerable expertise, particularly when managing projects and budgets. Board members should understand the steps involved in planning such improvements.

What are HOA Capital Improvement Projects?

Capital improvement projects are new construction, renovation, upgrades, and repairs that an HOA undertakes. These projects enhance the value of the property. With a capital improvement, an HOA makes permanent changes.

Common examples of HOA capital improvements include constructing a new swimming pool, renovating an old clubhouse, converting a tennis court into a pickleball court, and installing new landscaping items.

How to Plan a HOA Capital Improvement Project

Capital improvements involve a lot of work. Board members typically shoulder the responsibility of developing an HOA capital improvement project plan. However, only a few HOA boards know where to even begin.

Here are the steps involved in planning capital improvement projects for your HOA.

1. Evaluate Your Needs

Evaluating your HOA’s needs comes first. To do this, your HOA board should consider which parts of your community need improvements or upgrades. Speak to homeowners and get their input. Residents will likely have varying opinions, so organizing them into a neat spreadsheet is best.

Before pursuing a capital improvement project, check your governing documents to see if you need membership approval. For example, if your board decides to build a new amenity, your CC&Rs might require a majority vote from homeowners.

2. Learn to Prioritize

After assessing your needs, you must then narrow down your options. Your HOA board should prioritize projects based on urgency and level of importance. Projects that promote health and safety are the most crucial. Meanwhile, less urgent vanity projects should rank lower on the priority list.

3. Set a Budget

Once you have your projects lined up, it is time to set a budget for each of them. This budget should include the cost of materials, labor, permits, inspections, and legal fees (if applicable). It is best to pad your budget, too, to account for contingencies and unanticipated expenses. Ten percent of your estimated total budget is a good rule of thumb.

Of course, not all board members have experience in financial planning and budgeting. Plus, projects can differ in needs and size. As such, it is a good idea to hire a professional to help your board make estimates and develop a budget.

4. Establish a Timeline

Every project should come with a realistic timeline. How long will each capital improvement take? What are your estimated start and completion dates?

Consider seasonal hazards and limitations. If construction or renovation will span the winter season, account for potential storms that could halt your project. Give your HOA time for project planning, securing materials, hiring contractors, and execution. Then, give yourself some leeway and room for delays.

5. Hire Contractors

You can’t accomplish HOA capital improvement projects alone. Your HOA will need contractors. Obtain multiple quotes by sending out a request for proposal (RFP). Evaluate each proposal carefully, with your budget and needs in mind.

When hiring contractors and vendors, check their qualifications and references. Confirm that they have the proper licenses and insurance coverages. Hire a contractor who has had prior experience with similar projects. If you can, ask for photos of previous work to assess quality.

6. Monitor Progress

Once the project begins, keep a close eye on it. Monitor the progress of the work to identify any mistakes or gaps in quality quickly. Visit the site regularly and ask contractors for updates. This way, you can provide feedback, and the contractor can make immediate adjustments.

Additionally, your HOA board should ensure that the project goes according to schedule and doesn’t go over budget. Capital improvements almost always come with challenges. As such, you should prepare to deal with any unanticipated problems.

7. Communicate

Communication is paramount when it comes to project management. Your HOA board should practice open communication with homeowners, contractors, vendors, managers, and each other.

Keep residents in the loop about the project status. Brief them about the project timeline before work begins. If the project will result in road closures or temporary shut-downs of amenities, let residents know beforehand.

8. Get Feedback

After the project is completed, seek feedback from residents. Ask them if they are satisfied with the work and if they encountered problems when the project was ongoing. Look for areas of improvement. If you face an issue that can be resolved, address it quickly.

Budgeting for HOA Capital Improvement Projects

A clear budget is one key component of an HOA capital improvement plan. Unfortunately, many HOA boards don’t know where to get the funds for capital improvement projects.

There are a few options available. Increasing dues and charging special assessments are usually the first things that come to mind. However, an HOA loan provides more benefits.

An HOA loan offers immediate access to funding and spreads the cost over time. With a dues increase, your HOA will have to wait long before it accumulates enough funds to even make a down payment on the project.

Special assessments may provide immediate funding, but only if your HOA charges it in one lump sum. With large projects, that lump sum will likely be too expensive for most homeowners, resulting in criticism towards your board.

Moreover, dues increases and special assessments don’t guarantee funding. Homeowners may still default on their payments. A loan injects instant funding into your HOA account after approval. It’s a guaranteed amount, though one that your HOA will have to repay over time.

A loan offers more wiggle room regarding repayment. Because it spreads the cost over many months (or even years), it lessens the burden on the HOA and the homeowners. Thus, there is a lower initial impact on everyone involved.

Association boards should confirm with state laws and their governing documents that they have the ability to take out a loan in the first place. For instance, Section 7140(I) of the California Corporations Code gives HOAs the authority to borrow money.

Securing Funding for Your Projects

Planning for HOA capital improvement projects involves many moving parts and steps. One of them is budgeting and sourcing funds to pay for the project. Loans are a good option for this, but many HOAs need help with applying for them.

HOALoan.com provides loan assistance services to HOAs and management companies. Call us today to learn more!