How Good HOA Management Companies Make Income

Traveling around the country I talk with groups of folks interested in getting into the HOA management industry.

So I frequently get asked "how does anyone make money in this industry?"

For several years, it seemed that the more I explained the process (especially to people outside our “little” $12 Billion niche of the HOA management industry), the more excited I got giving detail after detail, the more glazed over their eyes became.

Well, hopefully I've got a bit better at the explanation these days, but just in case I haven't I'll illustrate the scenario using numbers for those of you analytical types out there!

There are a few basic facts that you need to know first.

1) HOA management companies charge a monthly "management fee" to do the basic management functions (like going to Board meetings) and accounting (like receiving HOA dues and cutting checks to the HOA's vendors). These fees typically equate to 50% of the management company's revenue.

2) An HOA management company's monthly "management fee" can be easily broken down to a revenue "per door" basis.

3) HOA management companies have numerous ancillary (read: extra) charges for additional work performed. These ancillary charges equate to the remaining 50% of the management company's revenue.

So now that you have the basics, let's take a look at how much an average HOA pays to its management company:

• Average HOA units (i.e., number of homes in the HOA): 150

• Type of unit (for this example): condominiums

• HOA Amenities: Clubhouse, pool, automatic gate, covered parking, playground, and BBQ areas

• Number of HOA Board meetings: 7 times per year (Board meetings every other month & 1 annual owners meeting)

Base Management Fee: $3,000 (note: $20 "per door")

Ancillary Fees:
+ Office supplies: $ 450
+ Postage: $ 100
+ Collection Services: $1,000
+ Escrow processing: $ 1,250
+ HOA Web site: $ 50
+ Compliance inspections: $ 150

Total Ancillary Fees: $3,000

Total Amount Paid to HOA Management Company: $6,000.

This same income statement can be looked at in terms of percentages of total revenue:

Base Management Fee: 50.0%

Ancillary Fees:
+ Office supplies: 7.5%
+ Postage: 1.7%
+ Collection Services: 16.7%
+ Escrow processing: 20.8%
+ HOA Web site: 0.8%
+ Compliance inspections: 2.5%

Total Ancillary Fees: 50.0%

Total Amount Paid to HOA Management Company: 100.0%

Interestingly, I recently reviewed some HOA budgets created in the mid 1980's and their "management fee" has not increased at all in the past 20 years!

Due to basic inflation, HOA management companies have had to find new ways to bring in revenue to stay in business so the proliferation of ancillary fees is now a standard practice.