How to Set HOA Dues for a Small Condo Building (Without Guessing)

Most small self-managed boards set dues the same way every year. Somebody looks at last year's number, adds three or five percent, and the board votes it through in ten minutes.

It feels responsible. It's the single most expensive habit in small-building governance.

Here's the problem: that method starts from last year's dues, which were themselves last year's guess. Nothing in it is connected to what your building actually needs. You can raise dues five percent a year for a decade and still be completely unprepared for the roof.

The boards that never get blindsided do it backwards. They start from the building and work back to the number. As it happens, that's also close to what Illinois law asks of them. More on that below.

Why the 5% habit fails

Your dues cover two entirely different things.

Operating costs. Insurance, water, scavenger, snow removal, common electric, cleaning, routine repairs. These are roughly predictable and they do drift up a few percent a year. For operating costs, the 5% instinct is fine.

Reserves. The money you set aside now for the roof, the masonry, the boiler, the porches. These have nothing to do with last year's spending. They're driven by what your building has, how old it is, and when each of those things dies.

When you raise dues by a flat percentage, you're applying operating-cost logic to a reserve problem. Reserves don't grow 5% a year. A roof doesn't get 5% closer to failing. It gets exactly one year closer, and the cost of replacing it rises with construction inflation whether or not you saved anything.

That gap is where special assessments come from.

The method: work backwards

Four steps. You can do this in an afternoon with a spreadsheet.

1. List what your building owns

Every major component the association is responsible for. For a typical vintage Chicago walk-up that's the roof, masonry and tuckpointing, the boiler or furnaces, the rear porch system, common windows, the front entry system, and any common flooring or lighting.

Don't include anything owned by individual units. Check your declaration if you're unsure where the boundary sits.

2. For each one, write down three numbers

• What it costs to replace today. Get a real number. Call a contractor, or use the last invoice adjusted for inflation.
• How long it lasts. Roofs 20 to 25 years, boilers 20, tuckpointing on a 15-year cycle, entry systems around 20.
• How old it is. This is the number most boards can't answer, and it's the one that matters most.

3. Divide

Replacement cost ÷ useful life = what you should be setting aside every year for that component. Add them all up. That's your annual reserve contribution.

Divide by the number of units, then by twelve. That's the reserve portion of each owner's monthly dues.

4. Add your operating budget

Operating costs ÷ units ÷ 12, plus the reserve number from step 3. That's your dues.

Not last year plus five percent. This.

A worked example

A 12-unit vintage building in Chicago. Here's what the reserve schedule might look like:

Your list will look different, and that's the point. Two identical-looking 12-unit buildings on the same block can have completely different reserve schedules depending on how they were converted. Some vintage buildings kept a central boiler feeding radiators. Others were split during the condo conversion so that every unit has its own furnace and water heater, which moves those costs off the association's books entirely. Windows work the same way: some associations own them, others only the common-area glass. Your declaration is the arbiter. Read it before you build the list.

$11,667 ÷ 12 units ÷ 12 months = about $81 per unit, per month, for reserves alone.

Now the operating side. For a building like this, add up insurance, water and sewer, scavenger, common utilities, snow, landscaping, janitorial, legal and accounting, and routine repairs. Call it $37,000 a year. That's $3,083 per unit annually, or about $257 per unit per month.

Total dues: roughly $338 per unit per month.

If that building is currently charging $240 and adding 5% a year, it's covering operations and contributing almost nothing to reserves. The board feels fine. The spreadsheet balances every year.

Then year five arrives and the masonry needs $45,000. That's $3,750 per unit. Three years later the roof goes: $60,000, or $5,000 per unit.

Be honest about what this actually saves

Here's the part most articles about reserves get wrong: funding reserves doesn't make the roof cheaper. It's the same money either way. Your building will spend $220,000 on those components regardless.

What changes is three things.

Predictability. $81 a month is a number owners can plan around. A $5,000 assessment arriving in a letter is not.

Fairness. This is the one boards underweight. If you don't fund reserves, the owner who sells in year four paid nothing toward a roof they spent four years wearing out. The person who buys in year seven pays the entire $5,000. Every unfunded reserve is a transfer of money from future owners to current ones, and eventually somebody notices.

Cost, at the margins. Emergency work costs more than planned work. You get one bid instead of three, you pay a premium for speed, and you sometimes borrow to cover it. Deferred masonry becomes water damage. Deferred roof becomes deferred roof plus ceilings.

If you're already behind

Most small buildings are. You don't fix it in one year, and you shouldn't try.

1. Do the exercise anyway. You cannot fix a gap you haven't measured.
2. Close it over three to five years, not one. A jump from $240 to $338 will fail at the meeting. $240 → $275 → $305 → $338 over three years usually passes.
3. Show the work. Bring the table. Boards that show owners the component list and the math get dramatically less pushback than boards that announce a number.
4. Name the alternative out loud. "We can add $35 a month now, or we can plan on roughly $3,750 each in five years." People choose the small predictable number nearly every time, but only when they're actually shown both.

What Illinois law actually says

This surprises most boards: the method above isn't just good practice in Illinois. It's close to the statutory standard.

Under the Illinois Condominium Property Act, every association budget adopted after July 1, 1990 "shall provide for reasonable reserves for capital expenditures and deferred maintenance for repair or replacement of the common elements." (765 ILCS 605/9(c)(2))

And when the board decides how much that should be, the statute tells it what to consider. First on the list:

"the repair and replacement cost, and the estimated useful life, of the property which the association is obligated to maintain, including but not limited to structural and mechanical components, surfaces of the buildings and common elements, and energy systems and equipment"

That is the exercise in this article, written into law. Replacement cost and useful life.

The statute also directs boards to weigh the return on investment of association funds, any independent reserve study the association obtains, the association's ability to obtain financing, and, notably, "the financial impact on unit owners, and the market value of the condominium units, of any assessment increase needed to fund reserves."

Market value is a factor the statute names explicitly. Protecting resale value isn't a talking point. It's something Illinois law directs your board to weigh.

About waiving reserves

Illinois does let associations opt out, but read the terms.

An association whose condominium instruments don't already require reserves may waive the requirement, in whole or in part, by a vote of two-thirds of the total votes of the association. It can vote itself back in the same way. Once waived, board members and the managing agent are shielded from liability for inadequate reserves.

But a waiver is not quiet. The statute requires it be disclosed in the association's financial statements and, highlighted in bold print, in the response to any prospective purchaser's request for information under Section 22.1.

So the real trade is this: skip reserves, and every future buyer is told about it, in bold, at the moment they're deciding what your neighbor's unit is worth.

The lending rules just got stricter

When an owner sells, the buyer's lender examines your association's finances. That examination is tightening.

On March 18, 2026, Fannie Mae and Freddie Mac issued coordinated updates (Fannie Mae Lender Letter LL-2026-03; Freddie Mac Bulletin 2026-C). Three pieces matter for small buildings.

The reserve minimum rises from 10% to 15%. For loan applications dated on or after January 4, 2027, an association generally needs to budget at least 15% of annual budgeted assessment income to replacement reserves. Fall short and the building can become non-warrantable, meaning conventional mortgages aren't available for any unit in it, not just the one being sold.

Unless you have a current reserve study. The 15% test doesn't apply if the association has a reserve study conducted or updated within the last three years and is funding at the highest recommended level in it. Baseline funding doesn't qualify.

If you have ten units or fewer, you may be exempt from the review entirely. Effective immediately, projects of ten units or fewer are eligible for a waiver of project review. Meanwhile Limited Review, historically around 40% of all condo project reviews, is retired for applications dated on or after August 3, 2026, pushing larger buildings into Full Review. Certain building-condition requirements still apply to waived projects, so confirm with your lender rather than assuming.

That split is worth sitting with: a nine-unit building may sidestep this entirely, while an eleven-unit building down the street faces full scrutiny. Either way the direction is one-way. A building with thin reserves and no study has a shrinking pool of buyers who can finance a unit in it.

The prerequisite nobody mentions

Every step of this depends on one thing: knowing what your building has and when it was last touched.

Step two asks how old your roof is. Most small boards genuinely cannot answer that. The invoice is in a former treasurer's email. The warranty is in a folder somebody's spouse threw out. The last person who knew when the boiler was serviced moved to Denver in 2019.

Notice that the statute assumes you know. It tells the board to consider "the repair and replacement cost, and the estimated useful life, of the property," which presumes a board that can say what it owns and how old it is. Most can't.

That's not a budgeting problem. It's a records problem that becomes a budgeting problem, and then becomes a special assessment.

So if you can't do step two, start there. Write down every major component, when it was last replaced or serviced, what it cost, and who did the work. Ask longtime owners. They remember more than you'd think. Dig through old minutes. It's tedious once, and then it's done.

After that, setting dues is arithmetic.

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This article describes Illinois law and Fannie Mae/Freddie Mac guidelines as of August 2026. It isn't legal or financial advice. Confirm specifics with your association's attorney or accountant.