Raising extra revenue doesn't have to be complicated, and it can make a big difference on the balance sheet.
By Kim Fernandez
Common Ground TM magazine, May/June 2013
© Community Associations Institute
Associations spend a lot of time figuring out how to make regular assessments last, agonizing over every last dime in a budget, and poring over minute details when choosing service providers, vendors and more. It's never easy. There's always more to be done than the dollars will cover. But in a tight economy, some associations go as far as postponing necessary maintenance just to save a buck.
That's why so many communities have embraced creative ways to raise non-assessment revenue, and why casting a net for possible fundraising sources is a smart move.
"Only 54 percent of our revenue comes from (assessments)," says Bob Sharp, CMCA, AMS, LSM, PCAM, chief operating officer of Palmetto Dunes Property Owners Association in Hilton Head, S.C. His community of 2,173 homeowners, many of whom are part-time residents or investors, boasted $5.5 million in (non-assessment) income last year.
Palmetto Dunes isn't alone. Associations across the country are finding there's more and more need to raise additional revenue that equals or bests the monthly checks that come from residents. Complicating matters, many residents balk at additional fees, feeling they pay enough and that more careful budgeting should do the trick.
Creativity is key, and there are ways to boost revenue without relying too much on raising regular assessments, levying a special assessment or borrowing from reserves or lenders.
Tap Tenants
Sharp says the half of Palmetto Dunes' revenue that comes from assessments simply isn't enough to keep the community running. "If that's the number, then the rest of our revenue has to come from someplace else," he says. "We have to keep (assessments) down."
Andrew Schumacher, CMCA, AMS, the community's controller, says his goal is to decrease that 54 percent even further. "We decreased our residential assessments this year," he says, because the association has been so successful finding income in other places.
For them, some income comes from non-residential tenants on the property: golf courses, a hotel, a general store and a bike shop, among others. They all pay an annual fee to do business in the resort community.
An additional 23 percent of the community's annual income comes from passes.
"We sell passes on an annual basis to contractors for access into the community," Schumacher explains.
Those contractors pay $200 to $400 per year depending how large a vehicle they want to drive through the gates. Vendors can buy a daily pass as well. The community also has a large number of short-term rental (two to seven nights) properties. Palmetto Dunes charges these rentals $10 per week for vehicle passes.
"We had a little bit of pushback" when the passes were introduced a few years ago, says Sharp. "We expected it."
The association had been charging homeowners $100 per year for unlimited passes, but realized that wasn't fair to full-time residents, who may only need a handful as compared to people renting eight-bedroom homes on a week-by-week basis. A little explanation went a long way.
J. Patrick Moore, CMCA, administrator of King City Civic Association in Oregon, says that kind of communication can make the difference between an idea raising money and falling flat. He learned that a few years ago when his association changed the fee structure for community clubhouse use from a flat fee to a sliding scale based on actual facility use.
"We had a straight registration fee for all of our clubs," he says. "We changed that to reflect how often a club uses the facilities, whether they set up and take down, what kind of use, and whether they had food and drink or just came in to play cards."
The association also scaled its fees by the number of times a club uses the facility in a given month and the size of the clubs. Those groups putting more use on the building pay more.
The largest club now pays $100 per year, and the smallest pays $30. The fees were changed gradually over several years, which eased some pushback. But still, some residents weren't happy.
"The first year we raised it some, and there was a big fuss," he says. "The second year we raised it a little, and there was a little fuss. And the third year we adjusted it a little more, and there was no fuss. Club revenue has gone up a bit as a result. People now realize everybody's costs are going up."
The association also instituted a clubhouse reservation fee of $15 to cover last-minute cancellations, which helped a little bit. In addition, he instituted a marketing program for the community's golf course, which is open to the public but was relatively unknown to those outside the gates.
"As our residents age, some stop buying annual tickets because they can't golf as much," he explains. "Last year, we did a Groupon and LivingSocial deal to get more golfers to come in from the outside." The association also set up a new website through www.coursetrends.com to spread the word and conducted an e-mail marketing program. Between the online deals and the new electronic outreach, Moore says, the golf course brought in $10,000 last year.
"The more public money that comes in, the less our residents have to pay," he says. "In good years, it can be a significant revenue source."
Provide Optional Services
Other communities have found great success offering a la carte services to residents.
Andrew Greenfield, CMCA, AMS, PCAM, general manager and chief operating officer of the Property Owners Association at Admiral's Cove in Jupiter, Fla., says offering more optional services to his residents has boosted the bottom line tremendously.
"What can we do from an association perspective besides provide security and tell people they've got dirty roofs or need to mow their yard? What can we do to be more entrenched in the community, and how can we provide more value to our homeowners?" he asked the board a few years ago. The answers for Admiral's Cove were to provide optional services by contracting with local companies and market the services to owners in the country club community.
Admiral's Cove sent e-mails and mailed announcements. Immediately, homeowners eagerly wrote checks to get those services started.
"About 60 percent of our homeowners have used the handyman services, and 2,842 work orders have been generated," Greenfield says. "Those who are using the services are using them multiple times." Additionally, about 30 percent signed on for alarm monitoring services, 10 percent of homeowners use the association's house-sitting service, and 13 percent use the pool services.
"In my experience, associations aren't very good about marketing themselves," he says. "We've always been there for our homeowners, but we never told them we were there."
Mark Wade, CMCA, AMS, LSM, PCAM, manager of Leisure World Community Association in Mesa, Ariz., agrees. He spread the word about his community's RV storage lot, and now residents store about 200 vehicles there for a fee. "That's a great source of income" that required just a parking lot, he says.
Neighboring communities have rented out garage roofs for solar arrays or cell towers. Leisure World also rents out its community room for weddings and other catered events.
Just Ask
One of the biggest revenue-raisers Leisure World has found is even easier: asking.
"We've fostered a spirit of contribution," Wade explains.
Leisure World residents are told about projects and simply asked to donate through a 501(c)(3) set up through the association; the charitable group also donates to local organizations and projects, such as homeless and battered women's shelters.
"We recently broke ground on eight new tennis courts that will cost $1.9 million. Much of that money came by way of donations from our residents," he says. "I had one resident write a check for $100,000."
Two years ago, a $4 million project to renovate a recreation center netted a check for $600,000 from one resident. All of that, he says, results from communication and a feeling of both value and community among residents. From his end, it's also a necessity.
"We have to do it," Wade says. "Special assessments aren't allowed."
And residents are the ones doing the asking. "It's all volunteer," he says.
"Our people are very proud of the fact that our community is 40 years old but our facilities look like they were built yesterday," Wade says. "Because they're proud of where they live, they want to be part of it and contribute to it. They are very proud to bring friends in and show them where they live."
Kim Fernandez is a freelance writer in the Washington, D.C., area.
Revenue Pitfalls
Communities large and small have found ways to raise revenue. Associations can install vending machines and ATMs, rent rooftops for cell towers, solicit advertising for the newsletter and website, grant easements for government projects, charge property transfer fees and more. For the most part, all of those methods work well, but there are potential pitfalls, warns P. Michael Nagle, principal of Nagle & Zaller law firm in Columbia, Md.
Some of the most common include:
Security deposits for clubhouses can't lead to another fee. "Technically, owners pay for the maintenance and upkeep of a facility through fees," says Nagle, a CAI past president and member of CAI's College of Community Association Lawyers. "Deposits have to be used to defray actual damages or costs associated with the rental. If there are no damages or costs, renters have to get that money back."
Clubhouse rentals must not supplant owner use, and renters must release the community from liability. "In a condominium, every (member) owns that facility and has the right to use it," he explains. "You have to have an established policy that allows the board to rent it out, and you have to have a good release, waiver and hold-harmless document for renters to sign."
Leasing property for cell towers, solar arrays or other structures is a good way to raise money, but it also produces taxable income. "A good accountant should pick that up," Nagle says. When negotiating an agreement, "You have to be careful not to give somebody exclusive use of a rooftop. I take out any exclusivity provision." Additionally, he says, associations should ensure the contract includes a property restoration clause for removing the equipment and a clause stating the association makes no guarantees that property owners won't interfere with signals. "Ham radios can cause interference," he says.
Take care that commercial renters don't diminish perceived property value. "Letting a convenience store, let's say, rent space or build a shop on the property can be a win-win," he says. "But it has to be palatable so that residents don't get up in arms over it." —K.F.
© Community Associations Institute. Further reproduction and distribution is prohibited without written consent. For reprints, go to www.caionline.org/reprints.