Management Co. vrs Managers

Started by RobertR1 • 5 replies • 1622 views

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RobertR1 (South Carolina)
Posts: 5,164

Posted:

Lot of interest in Budgets and the wisdom of selecting a management company.

I wonder how important and relevant the yearly income an Association takes in, is weighted when you decide how to go or change.

My regime 65 condos on ocean receives in the neighborhood of $250,000/year. That of course means that money has to be managed.

For Roger: You got any idea of how significant this income figure is when deciding what to do about management? Does this amount call for an audit every year? Now that I have started writing this lots of questions like that one come to mind.

Maybe a short synopsis of how income of some differnt gross amounts
would be normally structured. e.g. Manage fees, reserve, maintenance, landscaping, etc.

I know this is difficult to do because of different places, just some general comments would help, if it can be done.

JM2 (Oregon)
Posts: 439

Posted:

Hi Robert:

I speak as a person who started in a management company and now works as compliance coordinator for a large planned community (1900+ lots).

With an employed manager (plus staff) you have the following issues/possible headaches:
1) Hiring, evaluating, firing, etc. of staff. This may include maintenance staff, reception/bookkeeper as well as manager; perhaps other staff as well.
2) If you don't have an office or a unit to use as an office, you have to rent office space for your own staff.
3) Insurance and benefit programs.
4) Costs for training staff; if you get turnover, the cost goes up, since you're training one person and then a replacement.
5) You pay for all the office machines - computers, copier, telephones, etc.

Benefits of your own manager:
1) Person is dedicated to your community; their job rises or falls depending on their performance.
2) Your manager will likely have a better grasp of what's going on in the community - issues, events, etc.
3) You're not paying for the profit the management company would be making.
4) On-site jobs are often highly coveted in the industry.

for a management company:
Pluses:
1) Often there's a fully trained staff behind your manager who handle financials, payments, etc.
2) Mangement companies sometimes have their own maintenance staff; quick response times, flexibility in skills of maintenance people.
3) There's likely someone who will be there when your manager is on vacation, sick, etc.
4) You only pay for part of the costs of telephone lines, utilities, rent, etc.

Minuses:
1) The management company owner wants to make a profit.
2) If the management company has their own maintenance staff, you may be paying more for a job to get done than you would if you had your own maintenance staff member or outside vendors.
3) You may not have your own full-time manager; (s)he may have other accounts.
4) Your manager may work out of an office a good number of miles away, and be "remote" from the community; you would pay for time for them to get to your community (and possibly mileage).
5) You pay higher costs for copies, etc. because these are typically marked up for profit; letters, copies, etc. all come with a surcharge, that's where the management companies make a lot of their profit (assuming that the manager actually keeps track of all these items).

You might want to talk to several management companies locally and see what they would charge; also consult with someone regarding the staffing necessary to run your condo and the costs of a manager, rent, any other staff. Then, the Board could weigh benefits of both sides, along with finances, and see what makes the most sense for them. It might not be the cheaper one, if the board sees particular benefits of one or the other.

J. Patrick Moore, CMCA

RogerB (Colorado)
Posts: 5,067

Posted:

Robert, the important factors I suggest when deciding on management are:
1) Do you have sufficient volunteers with the competence to self manage?
Or do you want to hire a professional managing Agent?
A competent experienced managing Agent can save the association money. We often save associations more than we are paid! But don't assume that is true for the vast majority of management companies.

2) Your COA with an income of $250K ($320/unit/month) suggests to me you could easily justify a managing Agent.

3) The Agent (or an accountant) can collect assessments prepare bills for payment, and provide financial reports. This is only a portion of an Agent's duties. Budgeting funds should be done by the Board not the Agent; and the Board should review the financials every month. With a budget of $250,000 a year a yearly review, limited audit, is in order.

4) It is difficult to assign percentages to a budget for management fees, reserves, various maintenance items, insurance, etc. since these can vary significantly based on numerous factors.

5) Professional management costs in general:
condo's carry a higher cost per unit due to more time required than for management of townhomes and individual houses.
The cost/unit goes up as the number of units decreases.
The cost also goes up with more amenities.
In other words, the cost goes up as the time required to provide services required increases.

There are three basic factors a management company considers when bidding:
a) time involved to provide the services required
b) overhead costs - employee costs, office costs, equipment costs, etc.
c) profit margin

JoeW1 (New York)
Posts: 728

Posted:

RogerB - You stated to Robert that with a budget of $250,000 a year a yearly review, limited audit, is in order. However, Robert's by-laws may require a higher standard such as a certified audit. Mine require a certified audit. Robert needs to check his by-laws first to see if a higher standard is required. If there is adequate funds for a certified audit, and Robert's by-laws do not specify the requirement, I recommend Robert's COA do it at least once to get good footing for the future.

RobertR1 (South Carolina)
Posts: 5,164

Posted:

Thanks for the helful replies. Our regime, located in a resort area, has suffered of 25 years of absentee board members. Never has been a time that we had full time owner management. In spite of all we have not run the train off the track, but, imho, we could do better and finally, after 17 years may be in a position to have an owner full time on the board. I have contributed more by not being on the board in my time and it's a long story. I really belive we are going to make some long needed changes now. One of our first efforts is to break this cycle of entrenched boards. Present board has half the members been on the board for 7 years.
Thanks again.

RogerB (Colorado)
Posts: 5,067

Posted:

Joe, I agree with you. My comment about a limited audit does not mean it would not be certified. I have previously posted that I have never seen an HOA which did a complete audit. When paperwork is provided and reviewed by a CPA we do not consider this an audit. We consider this to be, at best, only a financial review.

By definition a full audit includes a thorough review of all assests and liabilities, including but not limited to, verifying income and expenses with bank and other financial institution's statements, random sampling to verify the actual existence of the vendors paid, capital assets claimed, etc.

CAUTION !! Not all certified audits are valid; remember the audits of Enron by a previous major firm called Arthur Anderson

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