Is Professional Management Worth It? 6 Self-Managing Costs to Consider
How do you make the right choice for your association?
When hiring a property management partner, what's the most important factor to consider? Many association board members will say it's the cost. Can your association afford it? Is it worth it? The most important question is, will it pay off in the long run?
When deciding to partner with a property management company, your board needs to consider many factors. While the actual price of the contract should factor into the decision-making process, there are many costs that come with operating as a self-managed association.
Read on to discover 6 costs to consider when choosing whether to self-manage or partner with a property management company.
The cost of time: Your time is valuable
While tangible expenses may be the first thing you think about when deciding whether to partner with a management company, there’s a vital cost you may be overlooking: time. One way to think about this is by calculating exactly how many hours your board is spending on association business.
In fact, your time costs significantly more in the long run. It is important to remember that association board members are volunteers, and many of them have full-time jobs. They shouldn’t be working 20 to 40 unpaid hours a week on association business. In the absence of a professional management company, board members and managers are left to handle many day-to-day tasks (e.g., creating communication templates, running meetings and drafting agendas, recruiting staff, etc.) versus their primary responsibility (i.e., strategic planning and decision making). This often results in board or manager burnout and turnover, where the remaining members end up shouldering even more of the responsibility of running the association.
FirstService Residential provides extensive support to ensure that the many administrative and day-to-day tasks are completed efficiently outside of the board members’ responsibilities. Board members oversee all tasks and decisions. However, they don’t need to be the point people for ensuring they are completed.
The cost of risk: HR support (and penalties) can be expensive
The cost of HR support is a significant expense for many associations. However, there’s more to it than that. For self-managed associations, taking on HR responsibilities poses a significant risk beyond the costs of third-party HR services and fees for recruitment, benefits, and training.
Employers who fail to seek professional guidance are vulnerable to lawsuits and fines. For instance, if an association inadvertently violates a labor law related to the Family and Medical Leave Act (FMLA), discrimination, or workers’ compensation, they may be subject to hefty fines. Depending on the number of employees you are responsible for and your understanding of federal and state law regarding labor, your association could face significant fines or even lawsuits.
This area of support is often the reason many self-managed associations choose to partner with a professional property management firm. For instance, a 3,550-unit master-planned community determined that they were spending an average of $75,000 to $100,000 a year on legal fees just for HR-related services. After partnering with FirstService Residential, this fee was removed because their associates transitioned from association employees to property management employees, eliminating the cost of third-party HR services. The association’s 45 employees also gained access to training and development, extensive benefits and a local support team, helping with talent retention as well.
The cost of reputation: A true lifestyle community requires training and support
When enhancing overall property values and engaging potential buyers, your resident experience is crucial no matter what type of association you serve. Maximizing your amenities, curating the right mix of events, and the correct programming for your community takes significant time and years of industry expertise. Even if you have a great general manager or a board member with hospitality experience, they may not have expertise in every area of lifestyle enhancements your community needs.
That’s why it’s important to work with a property management company that not only has lifestyle experience, but access to a support team with specialized expertise working with similar communities. The right professional property management company can also provide lifestyle and customer service training to staff, ensuring a consistent resident experience.
"When it comes to creating a truly exceptional resident experience, the impact of lifestyle cannot be overstated,” said Landy Labadie, vice president of community solutions. “A property management company with expertise in cultivating a distinctive lifestyle can support associations in creating an enhanced living experience for their residents.”
FirstService Residential's Community Solutions team works with associations to recommend and implement amenity and lifestyle programming to meet the boards’ vision and fit residents' preferences. These services include a residential hospitality program, concierge and front desk support, food and beverage expertise, spa/wellness/health programs, resident events (including children and pets!), sports programming, innovative technology offerings and more. Watch a video to learn more about our dedicated lifestyle services team.
The cost of size: Larger companies can lead to savings
Self-managed associations may be missing out on additional savings that come from partnering with a management company that has the added advantage of scale. Property management companies can help you save on or add value to utilities, insurance, and supplies. They can often help negotiate rates because of the size of their company and they can leverage existing relationships honed during their time in the industry.
Think of it this way: When self-managed associations are bidding on utility providers or requesting quotes for elevator contracts, they are representing one community or building. Given their small scale, that may pose a greater risk to a provider. On the other hand, a property management company representing thousands of associations and residents has the added benefit of reputation to negotiate better rates for the associations they serve. A vendor may also consider building a reputation with a larger property management company as more lucrative than developing one with an association on their own. This factor alone can result in potential deals or savings.
The cost of finances: Budget challenges require dedicated accounting support
The management of association finances can be complex, and not every board is equipped to handle them. An organization's budget planning, accounts payable, and accounts receivable costs can add up over time. It’s best to partner with a professional management firm to absorb those costs and gain expertise from a team that specializes in association finance.
"Managing a community association's finances can be daunting,” said Jeff Musselman, vice president at FirstService Residential. “The cost of surprise repairs or changes to staff wages can easily tip the scales of an otherwise sturdy budget. Partnering with a professional management company can support your board with any accounting-related challenges whether big or small.”
A professional management company should have dedicated accounting teams and financial expertise to support your board with accounting-related questions, delinquency guidance, and budget planning. Even if your financial needs seem simple now, dealing with a surprise maintenance cost or changes to staff wage requirements can negatively affect an otherwise solid association budget. You can manage these challenges with the help of a team of financial specialists.
The cost of missed revenue: Professional expertise can reveal opportunities
In addition to saving money, association funds can be boosted by working with a professional management company. The best management companies have the lifestyle experience to help you monetize amenities such as restaurants, spas, or event spaces. They can also guide other revenue-generating opportunities like increased deposit interest, on-site vending machines, etc. Perhaps most importantly, they can help your association maximize existing funds. For example, if you aren't leveraging your reserve funds correctly, your association may miss out on higher interest revenue. A professional property management company can provide specialized financial services to associations to help, including reserve and lending programs.
FirstService Residential-managed associations have access to dedicated financial services affiliate FirstService Financial, which offers a reserve program, insurance products, and lending services, to name a few. Its Cash Management team helps tailor short- and long-term strategies for each association’s unique needs, with the goal of replacing lower-rate funding accounts (brokerage-based money market accounts, sweeps, etc.), reducing ongoing security and tracking burdens, improving asset liquidity, and maximizing interest revenue.
One master-planned association decided to partner with FirstService Residential after a financial audit revealed they were earning minimal interest on their reserve funds ($1,000 in annual interest from $1.5 million in reserves). After hiring FirstService Residential and getting a full banking analysis through FirstService Financial, they increased their interest to a projected $75,000 per year.
Weighing the costs of professional property management
Deciding whether to partner with a property management company is not an easy task, as there are many costs to consider. However, doing a side-by-side comparison of costs, including the costs that will be absorbed by the management company, may indicate that it makes more sense to work with a professional property management firm. Whether you are paying significant costs on HR and legal fees or not earning enough interest on reserve funds, having a property management team on your side can yield significant value. Contact FirstService Residential today to learn more about the services and support we offer the associations we serve.