Budgeting For Success: Managing HOA Dues Increases
If you sit on the board of an HOA (a condominium, property owners or community association), you know that your community's financial stability depends on your ability to manage association dues effectively. Membership dues help operate a community and preserve property values. In our last Board Brief, our industry experts discussed strategies board members can implement to contain costs and generate revenue in an effort to maintain HOA dues and how to go about increasing dues if needed.
Strategies to Offset Costs
Condo and community associations are feeling the pinch as costs rise everywhere – from staffing to just about everything needed to run a property.
As an elected board member, you have a duty and obligation to the residents of your community. Your commitment to protecting the association's financial health is one of your most important obligations. After all, your community relies on you to manage its money and run its operations efficiently. So, in light of rising costs, how can you continue to meet the financial responsibilities of your community? Is it a good idea to raise dues?
Lowering costs can be challenging since it may mean cutting critical areas necessary to maintain the smooth operation of your community. How do associations manage these challenges, and what can you do to stay on budget? "Different communities have different approaches and strategies to deal with rising costs," said Anh Nguyen, vice president at FirstService Residential. "To save money, we're seeing some associations categorizing "must-haves" and "nice-to-haves," postponing purchases that can wait until they’re more feasible, while others have turned towards closely analyzing vendor contracts, along with their utility expenditures, for potential cost cutting."
Examining your utility bills to determine how much you're spending is always a smart idea. When assessing these costs, consider the following questions. What's your pool's temperature? Can you lower it? Is your sprinkler system programmed to stop watering the lawn when it isn’t necessary? Can you reduce the gym's air conditioner temperature to save on your bill? Are you using energy-efficient lighting and appliances? Even something as simple as installing water-efficient toilet flappers can save water and save you money over time.
According to Nguyen, some boards also opt to reduce their use of third-party contractors as a cost-savings measure. “They’re opting instead to utilize maintenance staff through their property management company for some of the work needed at the property, which can be less expensive and also provide a higher service level.”
A professional property management company will suggest cost-cutting opportunities, providing board members with solutions that can save your association time and money.
Looking for more ways to adjust your budget in light of rising costs? Watch: Ask the Experts Video: Budget Planning
Renegotiating contracts can also help offset costs. Providing your current vendors with lower bids from other vendors may encourage them to meet or even beat their prices. It is also possible for associations to save money by reviewing and identifying hidden credit card fees or charges as well as paying the total amount due upfront to avoid interest fees. Buying supplies from big box retailers like Costco – which can be less expensive than traditional industry suppliers – is another way to save on costs.
There is one area where communities should exercise caution when it comes to cost-cutting, and that is the area related to staffing. If your association is considering reducing staff hours or resident-facing staff to save money, you may want to reconsider.
“Cutting your headcount might solve the immediate need to keep costs down but the long-term effect can result in greater expenses in the future due to less preventive maintenance, said Anthony Gragnano, vice president at FirstService Residential. “You may start to notice the effects a few months down the line when a hallway that only needed a few touch-ups to the paint now requires a completely new paintjob. And by then, you’ll need to invest more money to catch up and get your community back to standard.”
Instead, consider optimizing your existing staff schedules and headcount rather than cutting staff. Understand the community's needs and the staff and time necessary to accomplish tasks so that your team's hours can be utilized efficiently.
One way to mitigate rising costs is to create alternative revenue streams. Clubhouse rental fees, vending machine fees, grab-and-go markets, and valet parking are just a few revenue-generating opportunities communities are considering. To make sure the increased revenue will exceed any operating expenses, conduct a cost analysis before moving forward with these or similar options.
Another opportunity to earn money is by ensuring your bank is providing you with the best interest rates available, according to Nguyen. “FirstService Financial partners with banks to provide higher yields for the accounts of the associations we manage.”
The association's ongoing health and stability depends on sound financial stewardship and smart decisions. As volunteers from all walks of life, board members may not always have the financial knowledge or experience to choose the right banking program to meet their community’s needs. Your professional management company can provide expert guidance in this area, to make sure your community is maximizing interest-earning potential.
Raising HOA Dues the Right Way
You've examined your budget for cost-saving opportunities, considered ways to generate income, and determined you still need to raise dues. So how do you approach this?
For starters, understand that even the most well-run condo and community associations often find raising dues necessary to keep the organization running smoothly. And understand that residents may resist paying more in association fees.
Here are a few tips to raise dues without alienating your residents.
It's easier on homeowners financially and emotionally when smaller regular dues increases are set rather than a large, unexpected hike.
Communicate regularly with residents about the association's financial situation. Keeping them informed is important to helping them understand how much things cost.
Explain to residents what their HOA dues support and how the funds are used. Be completely transparent about why an increase is necessary and explain that dues pay for daily expenses and the ongoing maintenance of community assets.
Raise the topic early to set the platform. Most communities understand that your goal isn’t to spend money you don’t have on things you don’t need. Residents will not be surprised by the increase if they are informed early.
Provide residents with a 30-day written notice before the increase takes effect. Email, flyers, newsletters, websites, and board meetings are all excellent tools for communicating with residents.
Be sure to ask your residents for their opinion and feedback regularly. Allow them the opportunity to tell the board what is important to them, and incorporate their feedback into your financial decision-making.
As a board member, your duty to the community includes protecting property values, and membership dues are an investment that assists in that effort. A good property management company will help you develop effective cost-cutting methods and identify ways your association can maximize revenue – and will effectively help you communicate HOA dues increases to your residents when necessary.
For more information on how a professional property management company can help your association save money, contact FirstService Residential today.