Too Small to Count? Small Associations Can Have Big Management Challenges

Too Small to Count?

When it comes to managing buildings, sometimes bigger is better. Larger properties with more units typically have a full property management team to run the place, a bigger budget and a much bigger reserve to tap into for unexpected repairs and projects. Bigger properties also maintain a wide variety of trustworthy vendors that they can turn to when something goes wrong. On the other hand, smaller properties—especially those of 12 units or less—can have a much tougher time handling all of the day-to-day building operations.

“Many management companies have a hard time with smaller buildings,” says Patty Coleman, property manager at Pyramid Real Estate Group in Stamford, Connecticut. “Some companies don’t work with small properties and many companies try to sell ‘full management’ to small communities at a low price, but give terrible service because the economics don’t work for the management company. They have to give a manager too many small properties to cover their salary and at that point the manager can’t be responsive or keep up with all the items.”

Fewer unit owners also means less money coming in to take care of unexpected repairs such as roofing issues, leaks, fallen trees and driveway repairs as well as other capital expenses. “Smaller properties lack a revenue stream,” says Mark Liberman REB, CAM, principal of On The Mark Management LLC in Milford, Connecticut, a property management firm that handles properties ranging in size from four to 212 units.

“With insurance skyrocketing in our neck of the woods due to natural disasters, such as Hurricane Sandy, how do you maintain spending money when these necessities to protect the association have to be paid?” he asks. “They’ll need to do a special assessment or pay over time.”

Short on Volunteers, Too

Smaller buildings also lack enough experienced volunteers to handle all of the day-to-day responsibilities. “For example, they do their own books and we find that they are not always done right,” says Coleman. “Smaller boards also don’t like to have to deal with collecting money from neighbors and they aren’t on top of time frames—and they lose out on community income. Additionally, there are fewer volunteers to be active on the board and pitch in.”

Vendors also have difficulty working with some smaller buildings. “I feel it is more difficult to find vendors to handle smaller properties,” says Coleman. “The larger properties tend to follow best practices more — which can make dealing with them as a vendor easier. Also some vendors may have waited a long time to get paid with a small property, as assessments from a smaller pool of people came in or a volunteer who was doing the books and writing checks was slow to pay.”

Regardless of how many unit owners an association has, the bottom line is that smaller buildings have to take care of just that, their bottom line. Paperwork needs to be filled out, budgets created, insurance filed and repairs completed … and somebody has to do it.

“Small associations don’t realize they have to be responsible to each other, both as a neighbor and as a fiduciary trustee to protect their interests,” says David A. Levy, CPA, and owner of David A. Levy CPA PC in Brookline, Massachusetts. “Owners have to understand that they bought a condo in a two- to four-unit association which has financials that have to be addressed and insurance policies that have to be repurposed. You have to follow the bylaws and the condo documents.”

Levy works with associations from four to 22 units, most of whom are self-managed. Without a big budget, they prefer to have a professional bookkeeper and service people who can help in a pinch, but they aren’t in a position to spend money on a larger property management company. However, for those who live in smaller buildings that would rather not self-manage, there are other management options.

Creative Solutions

Liberman explains that he has to be creative with his management solutions for smaller properties. If a small association’s budget cannot cover the services of maintaining a full property management company on the premises, they might be able to purchase the management services on a per-diem basis.

“Small properties need a hybrid customized management plan that enables them to have a management company behind them who can make sure that the association complies to the statutes,” says Liberman.

To save more money, Liberman suggests calling vendors on an as-needed basis. “Or, for example, they can reduce the amount of contracted mowings,” he says. “Instead of the normal, say, 24 mowings, the association can do 18, 16 or call the landscaping company on an as-needed basis.”

All associations need assistance fulfilling their obligations and Coleman says that her company offers services designed to reduce the board’s day-to-day accounting responsibilities of collecting money from neighbors, keeping good books, providing them on a timely basis and providing transparency and continuity when board members leave. “We also have a dedicated property manager that helps small communities with issues on an as-needed basis,” she says. “This helps that person be tuned in to the needs of smaller communities.”

Working with vendors can come with its own challenges for the smaller properties. Liberman says that he can refer smaller boards to vendors. “Before I refer a vendor I’ll qualify them that they work with this property that they can take care of it,” he says. “For example, a small property can’t afford a full contract snow removal, so they’ll have to do it on a per-event basis. They have to call the vendor and authorize it.”

Unfortunately, working on an as-needed basis can backfire, too. “Last year we had over 74 inches of snow in the New Haven, Connecticut area,” says Liberman. “A number of the associations were already running on a deficit and this added to it. One year later, three of them finally paid off that deficit. Another association hasn’t because 25% of their unit owners were 60-plus days delinquent and you can’t have that kind of delinquency in smaller properties. You have to have owners who understand the delicacy of the cash flow, to survive they have to pay their common charges.”

If a management company manages several small properties, it’s possible to bundle them together to vendors. “I do think it is more difficult to manage a smaller association, but a smaller association’s needs aren’t different than a larger one’s needs,” says Levy. “For example, when it snows, people still have to get to work. The only difference is, if an association brings in a plumber, all of the units might want to have their work done together and it’s sometimes more profitable for the plumber, but you can’t do that on 100 or 200 units, it’s more complicated.”

Regardless of size, Liberman says that every association should have someone on the board who is financially savvy and can work with the numbers. “They should deal with cash flow and revenue stream,” he says.

Essential Reserves

As challenging as it can be for a small association to come up with tens of thousands of dollars for repairs and capital projects, it’s extremely vital to its survival to have a strong reserve account. “Capital replacements occur at the worst time and you can’t assume everyone is going to fund it,” says Levy. “A lot of associations are reluctant to fund a reserve and some unit owners can come up with money to fund it on as as-needed basis, but not everyone is in the same position. If two out of the six unit owners can’t come up with money the entire association suffers. The smaller associations need a contingency plan. Even two-unit associations have to have a contingency plan with their simple budget.”

A budget identifies the association’s needs. “Even if only two people share the building, you have to plan that in 15 years something has to be done with the roof and start putting money away,” says Levy. “Maybe in a few years, you won’t be 100% there but you will have enough to have a repair done if there is an emergency.”

Remember that bigger might be better, but good things come in small packages. A small association shouldn’t think of itself as a liability and should instead have a plan in place to handle all of the monetary challenges that may come along and a team in place to refer to when something does go wrong. By working hard and planning ahead, an association of any size can be successful.     

Lisa Iannucci is a freelance writer and a frequent contributor to New England Condominium.

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