Lessons in Asset Management from an HOA

The board of directors of an HOA has many responsibilities to manage a community, including working with a community manager, communicating with homeowners, and making sure projects get done on time and on budget. The board also has to work together to make decisions. In larger multifamily deals, there may be a general partnership with multiple members who have similar responsibilities to an HOA board, and have to make joint decisions. The experience you could gain as a director on an HOA board can help you when starting out investing in multifamily properties. I discussed how being the treasurer provides great accounting experience in a previous article.

Setting expectations for a property manager

A significant member of a multifamily investment team is the property management company. It is important to choose the right company for your deal, and to set expectations up front. If you don’t have experience with property managers, it can be hard to understand what those expectations should be. However, many HOAs have community managers with a similar role to apartment property managers, and being on the board gives you insight into how the community manager operates and communicates with both the board and the homeowners. This insight can help you understand which expectations you want to set for a property management company on your deal, such as how you want them to communicate with you and how often, what you want them to communicate to you, and how you want them to communicate with tenants.

For instance, the HOA manager of one of my properties used to send newsletters to homeowners about every quarter. Many homeowners thought that quarterly newsletters were not enough. They were frustrated with the board at the lack of communication, especially concerning the ongoing construction projects in the community to repair roofs and sidewalks. The other board members and I worked with the manager to increase communications to a monthly community update with a biweekly update for large projects while those projects are in work. I learned from this experience that a property manager should be in regular contact with tenants, especially during the renovation phase of a multifamily deal, in addition to the asset manager of the general partnership.

In other cases, I have learned about when it is better to set up a conference call to clear up an issue versus creating an email chain. A 10 minute call with a summary email can save a lot of time and prevent confusion on a complex issue. In addition, the property manager should understand when it is appropriate to notify the general partnership immediately of an issue, and when an update can wait until a weekly or monthly status call. Many items can wait until the status call, which saves the asset manager from a flurry of emails that do not need his or her immediate attention. On the other hand, the property manager should know to immediately contact the asset manager for an issue like significant water damage to a unit.

Choosing a property management company

You may have some expectations for a property manager, but how do you find and choose one? If your HOA decides to bring on a community manager for the first time, or needs to replace their existing manager, then you can gain experience that will help you to choose a property management company for an apartment. For me, unfortunately, that experience came from replacing a community manager, but that experience helped me with finding a property management company.

HOA managers and property managers do not have the same role, but they have similar roles. Larger management companies may even provide both services. In both cases, the process for finding and hiring a management company is the same. 

You need to determine what your expectations are for the manager and what services you need. From these expectations, you can generate a list of questions you want to ask each company. After finding and reviewing multiple companies, you can choose a few to interview. It is likely that these companies will also be interviewing you to see if you are a good fit for them. Once you choose a new company, you will have to notify your existing manager, if there is one, and work to integrate the new management company. 

This process can seem daunting if you have never done it before, but if your HOA needs a new manager, then it can be a good opportunity for you to gain some experience. Of course, don’t try to force your HOA to replace a good manager just to get experience in this process.

Dealing with investors

Many people new to apartment syndications may think that once they buy a property, their work is to renovate and manage the property. However they should also send regular updates to their investors. If you were an investor, you wouldn’t want to give someone your hard-earned money and then not hear from them for 3 years. As a general partner, it is easy to forget that your investors are not involved in the day-to-day work of managing the property and do not know as much as you do. To keep them updated, you should send monthly status emails with information about how the renovations are going and how you are solving unexpected problems that came up.

It is easy to fall into this same trap as an HOA director. For a recent roofing project, the HOA directors were in the loop on all the roofing issues, and we thought that the homeowners were too since we had set up two meetings with homeowners to discuss the roofing project. Those meetings had good attendance, and our community manager sent a summary email for the homeowners who did not attend. However, we experienced delays on the project after the meetings, so 3 months later there were stacks of shingles on the roofs ready to install, but our contractor had not installed shingles on any of the roofs. The board was so concerned with working through the engineering problems that came up with the roofs that we forgot to update the homeowners on why there was a delay and the progress we were making. At the next board meeting, a few homeowners expressed their frustration at being in the dark regarding the roofing delays.

I would not want to have this happen with investors on one of my deals. While the property manager should be in regular contact with the tenants, the general partners should be in regular contact with the investors. Regular updates help to keep the investors happy, and happy investors are more likely to continue investing with you.

Conclusion

Experience as an HOA director can translate well into some of the responsibilities of a general partner. If you do not have a strong real estate or business background, joining the HOA board can be a good way to improve your qualifications. This experience may also help you determine if you want to be an asset manager in large multifamily deals since the experience for both is similar. You may instead decide that raising capital, acquiring properties, or investing passively is a better option for you.