Here’s how HOAs can cut costs and boost income

Most community housing schemes are in a constant battle to contain operational costs and keep monthly levies low – and that includes gated estates that are run by a Home Owners’ Association, says Andrew Schaefer, MD of leading property management company Trafalgar.

“And fortunately, there is quite a lot that HOA directors can do to reduce expenses and save owners money, although they do need to be careful not to sacrifice essentials such as security, maintenance or insurance cover even when facing pressure to cut levies.”

The first thing an HOA can do to save money, he says, is to hire a professional management company to assist the directors to run their scheme cost-effectively while also ensuring that levies are collected and disbursed correctly. “Typically, a good managing agent can take care of the billing, debt collection and financial management services for a medium to large estate for less than half of what it would cost the HOA to employ its own team to do so.

“Secondly, every HOA should now be actively planning to implement “green” ways to save electricity and water, as this can significantly lower running costs. Some examples of such solutions are water-saving irrigation systems, rainwater storage tanks and solar electricity systems, all of which also have the advantage of insulating schemes against loadshedding and water supply interruptions.”

Thirdly, Schaefer says, HOAs need to encourage and educate members to embrace other ways to save. “These could range from deciding to turn on the lights in communal areas only when it actually gets dark and running the pool pump only a few hours per day, to using technology for communications and record-keeping instead of printing everything out on paper and doing everything possible to avoid costly legal action against levy defaulters.

“Fourth, HOAs should not underestimate the savings to be made when they have a proper schedule of preventative maintenance work. This will often help them to find and repair minor problems and avoid major repair bills at a later stage.”

(Currently, Sectional Title schemes are legally obligated to implement a 10-year maintenance plan and budget for necessary maintenance, but HOAs are not.)

“Lastly, it can be really worthwhile for an HOA to review and renegotiate any contracts it has with service providers such as security, garden maintenance, and cleaning companies. In our experience, self-managed HOAs often lose touch with market-related costs after years of compounded increases from their longstanding service providers. We thus recommend a tender exercise every three years with a clear Service Level Agreement to address this risk. In addition, an experienced managing agent can benchmark cost estimates and quotes based on the broader portfolio that they manage.”

He also notes that there are several ways for HOAs to generate additional revenue as well as cut their costs and that these could include:

• Investing savings in longer-term deposits to increase the interest earnings by more than 1% a year;
• Making facilities such as a clubhouse, unoccupied parking spaces, and unused storage rooms available for members to rent;
• Offering additional services to residents such as landscaping, home cleaning, house-sitting, and pet care; and
• Creating new pay-as-you-go facilities for residents such as an on-site laundromat or business centre.