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
Costs are rising everywhere, and condo and community associations are feeling the pinch. Boards are routinely challenged to stay within budget due to rising maintenance and operational costs, reserve funding requirements and, in some cases, to comply with new regulations.
As an elected board member, you have a duty and obligation to the residents of your community. One of the most important of these is your commitment to protecting the association's financial health. After all, your community is counting on you to manage its money and keep its operations running smoothly. So how can you continue to meet your community’s financial responsibilities when costs keep rising? Should you automatically raise dues?
Lowering costs can be challenging since it may mean cutting areas critical to maintaining your community's smooth operation. So how are associations managing these challenges, and what can you do in the meantime to stay within your 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 it's feasible while others have turned towards closely analyzing vendor contracts, along with their utility expenditures, for potential cost cutting."
It’s always a good idea to examine your utility bills to determine how much you're spending. Consider asking the following questions when assessing these costs. Are you using energy-efficient lighting and appliances? What's your pool's temperature? Can you lower it? Can you reduce the gym's air conditioner temperature to save on your bill? Is your sprinkler system programmed to stop watering the lawn when it isn’t necessary? 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, 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
Additional strategies to help offset costs include renegotiating contracts whenever possible. If you present your current vendors with lower bids from other vendors, they may be willing to beat the price.
Associations can also save money by reviewing and identifying hidden fees or charges on their credit cards while paying the total amount due upfront to avoid interest charges. Buying supplies from big box retailers like Costco – which can be less expensive than traditional industry suppliers – is another way to save on costs.
Of the different cost-cutting opportunities available, there is one area where communities should exercise caution, and that is the area related to staff. Associations considering reducing resident-facing, maintenance and cleaning staff or staff hours to save money 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.”
Rather than reducing staff you will need later, consider optimizing your existing headcount and staff schedules. Utilize your team's hours efficiently by understanding the needs of your community and the amount of staff and time needed to accomplish tasks.
Creating alternative revenue streams to generate income is one way to offset rising costs. Valet parking, vending machines, grab-and-go markets, and clubhouse rental and laundry facility fees are just a few revenue-generating opportunities. But before moving forward with these options, it’s wise to perform a cost analysis to ensure the increased revenue will exceed any operating expenses.
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.”
Sound financial stewardship and smart decisions ensure the association’s ongoing health and stability. 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
So you’ve analyzed your budget for cost-saving opportunities, explored potential ways to generate income, and determined that 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 can resist paying more in association fees.
Follow the tips below to raise dues without alienating your residents.
Communicate regularly with residents about the association's financial situation. Keeping them informed is important to helping them understand how much things cost.
Help residents understand what their HOA dues support and how the association uses these funds. 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. Keeping residents informed early means that when the increase is implemented, they will not be surprised by it.
Rather than a large, unexpected hike, set smaller regular dues increases which are easier on homeowners financially and emotionally.
In advance of the increase taking effect, give residents a 30-day notice in writing. Email, flyers, newsletters, websites, and board meetings are all excellent tools for communicating with residents.
Routinely ask your residents for their opinion and feedback. 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.