KEEPING CASH FLOWING IN TOUGH TIMES
When it comes to managing real estate, a cash flow drought can quickly become a catastrophe. Whether cooperative or condominium, a building that does not have the resources to pay its expenses is headed for disaster. The fall-out can damage everyone with a financial stake in the property, especially unit owners who are usually forced to make up any shortfall in meeting financial obligations. However, many property owners and managers may be overlooking important opportunities to reduce unnecessary expenses and find additional sources of revenue.
Repair Controls
One of the primary ways Boards spend money unnecessarily is through repairs. Often, it is not immediately clear whether a repair is the responsibility of the unit owner or the building. As a result, this may cause disputes between unit holders and building management fueled by contractors who may not be fully aware of the responsible party. In some cases, mistakes may even lead to improper billing of the building management for repairs that are the responsibility of the homeowner. To prevent these unnecessary charges, building management should develop a protocol for repair orders. A straightforward form, produced in triplicate with copies for the unit owner, manager, and contractor, should be used to record the initial concern as well as the contractor’s assessment. From there, the building management will have a clear paper trail of the specific problem, as well as whose responsibility it is to pay for the repair.
Additional Asset Rentals
Within the property, there may be space or assets that represent untapped revenue opportunities. For example, if your property has a large parking lot in an area where parking is scarce, you may be able to rent some of those spots. Review your building’s use of space to see if there are opportunities for storage units that can be sublet or meeting rooms that can be rented. Look at the needs of the community in which the property is located and seek out asset rental opportunities that fit the local market.
Similarly, if the property features an amenity such as a workout facility, swimming pool, playground, or roof garden, it may be possible to recoup additional dollars by offering memberships or rentals to community members or by charging fees for guest access.
Administrative and Enforcement Fees
The daily administration and enforcement of rules can be time-consuming and costly. However, some of that expense can be recouped in the form of fees for paperwork requests and item replacements, as well as fines for rule violations. For example, replacing a lost stock certificate or occupancy agreement could command a $250 each per occurrence fee*. Fees for lost keys ($25-$75 each); replacement of parking garage clicker or card requests ($75); unit alteration agreements ($200-$500), to name a few, could result in adding significant money in the building’s coffers.
Enforcement fees and fines serve two purposes: They provide an incentive for residents to abide by the building’s rules, creating a more orderly building, while also generating revenue from those who choose to violate building rules. Some enforcement fees and fines include: Alteration agreement violation (up to $3,000); first, second, and third rules violations ($50to an amount set by the building board) and even bounced check fees ($50).
Transaction-Related Fees
When a unit is purchased, sold, transferred, or sublet, there is typically a significant time commitment needed from building management in overseeing the change in ownership or occupancy. This expense can be mitigated by fees such as a prospective purchaser application fee ($300), stock and estate transfer fees ($200 to $800); and various closing-related fees ($100 to $400 each). Fees can also be applied to refinancing and reverse mortgage financing ($50 to $100 each).
While every building will have different opportunities for such revenue streams, the opportunity exists for almost every property. The key to using them effectively is to tailor a menu of fees, rental and access opportunities, and enforcement fines (to each building’s individual circumstances). In addition, these charges must be clearly communicated to unit owners or shareholders before they are put in place to ensure that everyone understands the purpose and impact of the new fees and fines.