HOA income is critical to maintaining community finances. Whether it’s a homeowners association or a condo association, both need steady revenue to pay for maintenance, utilities, insurance, and reserves. Without a reliable income, boards will struggle to meet their obligations.
Common Ways Associations Earn HOA Income
Associations function in much the same way as any corporation or small government. These communities incur expenses, requiring funding to cover said expenses. While associations primarily rely on dues and assessments, there are other ways to earn revenue.
Here are the most common sources of HOA income.
1. Membership Dues
The most common form of HOA revenue comes from membership dues. Association boards typically collect these on a monthly, quarterly, or yearly basis, depending on the governing documents.
Association dues serve as the foundation for community finances. They cover day-to-day operating costs such as landscaping, maintenance, insurance, and professional fees. Dues also fund the reserves, which prepare the community for major repairs and replacements.
2. Special Assessments
Special assessments are separate from regular dues. They are one-time charges an association levies when there are unexpected expenses. Examples of such expenses include storm damage repairs or major capital improvements that exceed reserve funds.
While boards try to avoid special assessments, it is not always possible to prevent them. Special assessments often cause frustration among homeowners since they require sudden, sometimes large payments. Condo associations, in particular, may rely on them when reserves are underfunded.
3. Facility Rentals
Communities with shared amenities can rent out facilities to generate additional income. Clubhouses, gyms, pools, and event spaces can all be valuable sources of revenue when not in regular use by residents.
Boards may allow homeowners to rent a clubhouse for birthday parties or wedding receptions. Condo associations with rooftop terraces or lounge spaces can also charge for private events.
Of course, it is important to manage scheduling and rental policies. In doing so, associations can generate a steady income while keeping wear and tear in check.
4. Vendors and On-Site Services
Associations can earn revenue by leasing space to vendors who provide services within the community. For example, a small café, dry cleaning drop-off, or convenience kiosk can operate in a condo building lobby.
Even vending machines in common areas like gyms or laundry rooms can generate consistent income. This setup can benefit both residents (who enjoy convenient services) and the association (which collects rental fees or a percentage of sales).
Boards should ensure that vendors align with community needs and comply with governing documents. When done correctly, vendor partnerships can be a win-win situation for everyone.
5. Space/Storage Rentals
Associations can turn underutilized spaces into income-producing investments. Boards can convert basements, attics, and underused rooms into storage rentals for homeowners. Parking spots are also highly valuable, particularly in dense urban areas.
Even bike racks or storage lockers can be rented for small monthly fees. Space rentals require minimal upfront investment but can provide a consistent revenue stream that benefits both the association and residents.
6. Sponsorships or Donations
Some associations turn to sponsorships and donations as additional sources of revenue. Local businesses often want exposure within the community.
An association can provide that in exchange for financial support. For example, a local landscaping company might sponsor a spring cleanup event, or a realtor could advertise at a community picnic.
Associations can also receive voluntary donations from residents who want to support specific projects, like new playground equipment. Sponsorships and donations work best when they clearly benefit the community.
7. Fundraisers
Fundraisers are an engaging way for associations to boost income while building community spirit. Boards can organize events like bake sales, car washes, auctions, or trivia nights. Yard sales hosted by multiple residents can attract both homeowners and outside buyers.
By opening these events to the general public, associations can cast a wider net and increase earnings. Fundraisers work exceptionally well for smaller projects, such as upgrading community landscaping or purchasing new furniture for a clubhouse.
Beyond the financial benefits, fundraisers can help strengthen connections between neighbors. They can turn what might feel like an obligation into an enjoyable and memorable community tradition.
8. Advertisements
Advertising can be another valuable source of association income. Associations can sell ad space in newsletters, websites, community apps, or bulletin boards.
Local businesses, such as restaurants, repair shops, or fitness studios, are often eager to advertise to residents in the area. Larger associations with strong digital platforms can even attract recurring advertisers.
Boards should develop clear policies to ensure advertisements are appropriate and do not overwhelm communication channels. When managed well, advertising revenue can help offset costs and add to the budget without raising dues.
9. Event Fees
Hosting events can be more than just a social opportunity — it can also generate income. Associations can charge attendance fees for festivals, movie nights, holiday parties, or classes like yoga and cooking workshops.
Fees don’t have to be large to add up, especially in larger communities. Boards can also charge sponsorship fees to vendors participating in these events, such as food trucks at a summer fair.
Condo associations with indoor event spaces may have even greater potential to host regular activities. Event fees not only generate revenue but also foster engagement and community pride.
10. Air Rights
Air rights refer to the ability to develop or sell the space above a property. In dense urban environments, condo associations sometimes sell their unused air rights to developers. This allows taller buildings or expansions to be constructed nearby.
While this is not a common revenue source, it can be very lucrative in the right circumstances. Boards must ensure that such decisions align with zoning laws and community interests. Selling air rights is complex and usually requires legal and financial expertise as well.
11. Cell Towers
Leasing space for cell towers can provide long-term revenue. Associations can allow carriers to install towers on rooftops, clubhouses, or unused land.
Steady income is the obvious benefit, but there are cons, too. For instance, cellular towers are often unsightly and can raise concerns about property values. They can also cause disputes among residents who dislike them. Boards must weigh the pros and cons carefully and seek homeowner input before making a decision.
Do Associations Pay HOA Income Tax?
Yes. Associations must report HOA taxable income to the IRS. Exempt function income, such as membership dues and assessments, is not taxable, but other revenue sources often are.
Income from rentals, advertising, vending machines, and facility fees is typically taxable. Both HOAs and condo associations usually file Form 1120-H, which allows them to separate taxable and exempt income more easily.
A Smart Decision
HOA income is not limited to dues. There are many other sources associations can use to earn revenue. Some are more lucrative than others, but choosing which to pursue should depend on the association’s needs and goals.
National Realty Partners is a leading provider of association management services in Virginia. We can help your board manage income sources. Call us today at 703-435-3800 or request a proposal online to get started!
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