Hey everyone out there.
I have an offer in on a townhome within and HOA and I just received their budget. The community is nothing crazy, but its above average for the area. It has a pond with a fountain, common area with gazebo, its own roads. They have 104 Townhomes and around 100 homes.
They have a Total Yearly Revenue of $162,368 and they pay Management Fees of $49,041.00 or 30% of their Revenue.
Also, they allocate $12,867.00 (8%) for Reserves.
30% seems very high to me, but I'd like to get your feedback.
@Bill F. You need to find out what the HOA gets for their Management Fees. Get in touch with them, and request a copy of their contract, and get a list of what they do.
Then shop it around to other Property Management Companies in the area and see what they would charge.
I would also reach out to the Board Members and talk to them. I am sure they could provide you some insight.
I am the sole employee for an upscale HOA - I am the manager rather than a management company. In Colorado you need a special license to do this. We have 224 sfr units and a similar budget. Our owners love that they have direct access to me. @Steve Racicot gave you good advice - what service are you paying for? You might also consider just hiring your own person... BTW: we put $25K-$30k in reserves each year - but we own a community center and swimming pool.
I bought a condo for my sister some time ago, and picked up one for rental. What you mentioned doesn't sound outrageous.
The HOA could always solicit bid from other management companies, but the residents there consistently complained about high fees and they're already into their 3rd management company. They complained about the high fees so much that the last management company dropped us, saying a condo of 104 units is a little bit on the small side for their operations.
After that, the HOA found a company whose job it is to only bill the monthly HOA fees, and I don't think its even a PM company. The rest of the operations was handled by resident volunteers. Since it's a multi-story building with interior hallways, they hired a local cleaning lady. My brother-in-law was the volunteer for changing bulbs where as the management company charged $25.00 per burnt out bulb, and you'll have to wait sometimes 2 weeks. My brother-in-law checks his voicemail and changes the same afternoon when he get back from work. He also on the tree trimming committee among others. Another volunteer manages move in and move outs.
Now, they have to get their own insurance since there is no operational management. For instance, the cleaning lady they hired directly they have to get their own workman's comp. They have to get liability insurance etc.
I heard they also have trouble finding PM companies because they were so cheap. I have since sold my condos, but my sister still lives there. I don't know how the use of resident volunteers work out in the long run as there were rumblings of discontent back then. For instance, on the tree trimming committee, no one shows up half the time. So I asked my brother in law, did you check around for landscapers?? Alright, I think I know the answer, the tightwads would complain it's too much.
@Bill F. , pay attention to transfer fees as well as management fees. Many HOA management companies have created an extra revenue stream for themselves by charging hundreds of dollars for a small amount of clerical work when a home is sold. They get away with this because state laws generally don't restrict the fees, and HOA boards don't pay attention.
Here in Colorado, I sit on the boards of two HOAs. I have the same management company for both HOAs.
Our management company charges us $10 per unit per month. So my 184 unit complex pays $1840 per month and my 432 unit complex pays $4300 per month.
For that price, we get:
All accounting services except for audit and tax.
Management of all homeowner issues/complaints/maintenance requests, etc.
Management of all vendors, work orders, bids and quotes, etc.
Regular code enforcement walk through, notifications and fine management
Interface with collections attorney.
Annual meeting management, including adhering to proper notification periods, proxy counting and all the crap that goes with it.
For my larger complex, we get a management company employee who sits in our clubhouse 2 days per week to help homeowners with dues payments, questions, etc. She also does a walk-thru once per week to check on maintenance projects, pool quality and any small repairs that might need to be done.
Management of our two on-site maintenance technicians.
@Bill F. Your description doesn't sound like a place that needs a full time manager so unless they are performing other services that cost is way out of line and I find it hard to believe an association can remain solvent giving up 33% to a pm.
8% for reserves is actually pretty low in most cases. Funding a reserve is like funding a pension fund. For example, a roof has an average life of 20 years so each year you should put 1/20th of the cost of a new roof in reserves. If you don't allocate enough you'll be fine for years but when things start breaking down in 20 years there will be no money to pay for it.
@Account Closed Thanks for the response. What other services could/should the PM provide in order to mae their fees justifyable?
@Bill F. Sorry that I am late coming to this discussion, but what did you come up with?
I agree that 30% of revenue to a Community Association Manager is pretty high. Hopefully they provide a lot of services for that amount, including physical repairs of common areas.
It does not appear that Reserve Planning is among those services, since an 8% Reserve seems pretty low.
Is the Declarant still in control? In my experience, Declarants-in-control have a tendency to over-pay management companies, sometimes even management companies that they own under separate legal entities.
If you were successful getting much information from a HOA as an offeror, I am impressed, as their governing documents and practices generally limit their obligations to their own Owner/Members. If that is the case, the mechanism is for the offeror to include an "HOA contingency" that allows for review of the documents to the offeror's satisfaction.
Let us know what happened, please.
@Michael Dake Thanks for responding.
I ended up closing on the property two weeks ago and am in the process of rehabbing it now. I ended up having to pay for a lender report to get all of the specific financial data I wanted.
I was incorrect with my original numbers. The HOA has 1100 units in total with 250 being townhomes. The over all HOA has about $80k in reserves and the townhome specific one has $30k. Not great, but not terrible. The oldest townhome were built in 2010 so they have some time to build up their reserves. However, there is not a reserve study.
You were correct: the developer still runs the community and will until 2040.
@Bill F. I hope that the reserve fund starts to grow real fast, because they are going to have to plan for roof replacements, heating systems, windows, doors and other capital expenditures just around 2040 when the developer leaves.
A $50k fee to the PM makes sense with that many units, but condo fees still seem very low, unless I am missing something here.
@Steve Racicot I plan on bringing the reserve fund, or lack there of, up at the next HOA meeting.
I don't think you are missing anything. I believe the developer is keeping the fees low to get people to buy the new construction.
I know it's not a great strategy, but I don't plan on owning these units more than 5-10 years. The market is going through a correction and I bought it at a short sale below market value. My play is add some value through improvement and sell once the market has corrected. The Marine Corps plans to expand the base in the next few years so demand will increase.
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