Traveling the country talking to groups of people interested in entering the HOA management industry, I am frequently asked “how do you make money in this industry?”
For several years, it seemed that the more he explained the process (especially to people outside of the small $ 12 billion niche of the HOA management industry), the more excited he was giving detail after detail, the more glassy his eyes became. Well, I hope I’ve gotten a little better at explaining these days, but in case you haven’t, I’ll illustrate the scenario using numbers for those of you who are analytical!
There are some basic facts that you should know first.
1) HOA management companies charge a monthly “management fee” to perform basic management functions (such as going to Board meetings) and accounting (such as receiving HOA dues and cutting vendor checks HOA). These fees are usually equal to 50% of the income of the management company.
2) The monthly “management fee” of an HOA management company can easily be divided into “per door” revenue.
3) HOA management companies have numerous ancillary charges (read: extra) for additional work performed. These supplementary charges are equivalent to the remaining 50% of the income of the management company.
So now that you’ve got the basics, let’s take a look at how much an average HOA pays your management company:
Average HOA units (i.e. number of households in the HOA): 150
Unit Type (for this example): Condominiums
HOA Amenities: Clubhouse, Pool, Automatic Gate, Covered Parking, Playground, and BBQ Areas
Number of HOA Board Meetings: 7 times a year (Board meetings every other month and 1 Annual Owner Meeting)
Basic administration fee: $ 3,000 (note: $ 20 “per door”)
Auxiliary rates:
Office supplies: $ 450
Postage: $ 100
Collection services (i.e. chasing delinquent homeowners to pay the HOA): $ 1,000
Escrow Processing: $ 1,250
HOA Website: $ 50
Compliance inspections: $ 150
Total ancillary fees: $ 3,000
Total amount paid to HOA management company: $ 6,000.
Interestingly, I recently reviewed some HOA budgets created in the mid-1980s and their “administration fee” has not increased in the last 20 years. Due to core inflation, HOA management companies have had to find new ways to generate income to stay in business, so the proliferation of supplemental fees is now standard practice.
