This is a direct result of inadequate management. Of course, if management has been advising increases and reserve funding, but the board has not listened, the board must share in the fault. There are two aspects to the Money Shortage: Current Cash Flow and Reserves Inadequate for needed Capital Repairs and Improvements.
The remedy for current cash flow is a budget matter. Analyze the current budget. Budgets always begin with the expense side. Revenue (or income) is a controllable line—if you need more money, you raise assessments. Once the desired expenses are listed, we calculate the income needed. This determines the assessments. Now, it is up to the board to evaluate the level of assessments with regard 1) to the financial needs of the community and 2) to the ability of the members to pay. If adjustments are needed, both income and expenses must be adjusted. It’s really that simple; if you don’t have the income, you can’t spend the money. It is NEVER the duty of the board to ensure that the assessments remain constant! Assessments are a function of the budget. If the community needs landscaping, the landscaping costs will rise with labor, fuel, and equipment prices. Assessments will have to meet that increase. All services are subject to inflation of some sort. It is the duty of the board to ensure that the community is being charged a fair price for the services provided. It is the duty of the board to determine what services are needed and what services can be reduced or eliminated to save money. It is the duty of the board to set the assessments at a level necessary to preserve the property values, to deliver the services residents were promised when they purchased, to provide a reasonable level of safety and security for residents, and to provide for the replacement of building and property components when their useful life expires.
Insufficient reserves is the issue we see most frequently. Management companies and boards are reluctant to increase assessments to cover future expenditures, especially those not planned for 10, 15 even 25 years in the future. It is an unacceptable and incompetent attitude that expresses the feeling, “I won’t be here in 25 years.” Someone will be! Today, you drove across that parking lot and caused damage. You must contribute to its replacement. You enjoyed the use of the roof over your head when it rained. You must contribute your share toward its replacement. That is how reserves work. It is the board’s fiduciary duty to ensure that future residents do not inherit a deteriorated roof, heating plant, parking lot, and the like with no money to make the replacements. A reserve study will evaluate the condition, remaining life, and replacement cost of every community asset. From that, the study will determine the monthly or annual contribution needed for the community to make the replacement, when needed, without special assessments. In the end, isn’t that a better way to manage future cash flow? Residents can better afford a 5 or 10% assessment increase than an unexpected $5,000 special assessment, don’t you think?
We don’t believe there is apathy in our communities. We believe two conditions cause perceived apathy: 1) owners are happy with the status-quo or 2) owners don’t feel welcomed to participate in the community.
The fix: Creativity. Management and the board must come up with ideas and programs to invigorate the community. Everyone has an interest in something, but not everything interests everyone. Some people would participate in a social program. Others want to enhance security. Still others would help the board with the budget or the elections process if only they were asked. Have you ever been asked to do something or buy something? Did you act the first time you were asked? Most people have to be asked six times before they act. We must never give up. MMI will show you a variety of programs you can start with little or no money that can be used to revive your apathetic community.
Committee service is the best way to get people involved. When a resident complains about outside foot traffic crossing the property and demands a fence, ask that person to head a security committee and to investigate fences, cameras, live patrols, Neighborhood Watch, and other options for the community to consider. When that person realizes that the cost of a fence might be $25,000 or more; that the funds are not available without a special assessment or assessments increase, he or she may become very creative. Landscaping may be used to redirect that foot traffic and, at the same time, to enhance the beauty of the community without adding a budget line item. MMI encourages the formation of committees for security, nominations, budget, community activities/social, disaster planning, and more.
These committees will not form overnight. It may take years to fully staff all desired committees. But, the time to begin is now. The best time to begin is when you change management because the community will view this change as an attempt to bring new life to the community. If management hits the ground running and immediately asks for volunteers, more people will volunteer at this time than any other. The trick is to follow-through and charter those committees as soon as a volunteer steps forward. That enthusiasm must be seized today. The next key is to give the committees the voice they deserve. The members volunteered their time to provide the services requested. They must be given the opportunity to present their reports. They must receive recognition for the work they did. The board must decide how best to implement the recommendations of the committee–or decide not to implement without offending the volunteers and appearing not to appreciate the hard work that resulted in the recommendation. Good leaders are diplomats. As a board member, you will become a diplomat if you are to succeed.
In order to fix a deteriorating community, you have to first be able to recognize deterioration. MMI has a history of rental management including the purchase and restoration of distressed properties. From that experience, we bring an eye for recognizing a community’s physical needs. Our slogan, “A Fresh Start for Your Community®,” is a direct invitation to communities in distress to call upon our skills. Restoring a community costs money and the board must be willing to call upon the owners to contribute toward the goal, but there is the challenge: defining the goal. Ten or twenty years of deterioration may not be able to be fixed today or this year. It may take a 3-year or 5-year plan to accomplish the goal. But, the members of your community can be convinced that their property values are suffering as a result of the neglect and that it is time to end neglect.
We would start with a thorough property inspection. Now, we are not engineers and our inspection should not replace the professional reserve study. But, we can help you develop a short-term rehab plan and can help estimate costs close enough to develop a map for the road to recovery. This “road map” is a plan; a plan that ensures that all money collected from owners goes toward the restoration project and delivers what is promised. With a plan in place, we go to the community for funding.
Your members are intelligent people. They are homeowners. They have worked and saved to buy a home in your community and they recognize that this home is their biggest investment and the one most likely to help them attain financial security. But, since they likely earned their money as nurses, auto mechanics, administrative assistants, lawyers, government workers and the like, they may not be trained in recognizing the need for preventive maintenance or in property care. But, they can learn. All they need is a good teacher. So, the next step is a sales job; a class on preserving and enhancing the value of real estate. Here, MMI will develop a show–a slide show and a narrative to demonstrate what has happened to the community over the years and what the board is proposing to reverse the damage. We will present estimated costs and timelines. When your members see what you have in mind and they understand the cost and the benefits of enhanced value, it will be an offer they can’t refuse. No one will willingly agree to allow their property value to continue to drop when they can see their restoration investment grow by five or ten times through increased property value. This is how we get the homeowners on board. From this presentation, they will know what you plan to do, how much you expect to spend, and how long you think it will take. Informed owners will be supporters of the program.
Now, we implement the plan. We would begin with what we call “Stop the Bleeding.” Conditions like leaking roofs, damaged siding, rotted wood; these are conditions that quickly result in more extensive damage. While they may not give the most kick to the overall appearance, prompt attention to these items will keep the overall restoration cost from growing while we work. Health and safety issues are right up here as they pose a risk to our residents and, at the same time, they are a financial risk should someone be injured.
Next, we go for cosmetics. The residents must see something happen to keep them committed to paying the costs. Painting is an inexpensive way to bring fast results. Grounds cleanup will bring immediate results.
The last step is the structural and infrastructural components. Asphalt paving, concrete, mechanical systems; these are elements that everyone needs and everyone uses, but they cannot so readily see the improvements. But, they are the most costly of all. We began with a sales pitch. We immediately addressed health and safety issues. We showed them we are working by attending to cosmetics. Now, we are just continuing with the plan and dealing with the major items. By now, your members may already have seen the impact the plan has had on property values. They will stick with the plan. You will have succeeded in giving your community a Fresh Start.
Everyone is busy. In virtually every business, we hear people say they are working harder for less money. This is true in our industry, too. That said, MMI will assign a Lead Property to your community. Assisting them, there will be the accounting department and Client Services–administrative support. Client Services should be able to resolve 90% to 95% of all homeowner calls leaving the manager to be available for board member communication and on-site visits. Everyone has a phone, email, and voicemail. You and your community members should have no major problem reaching someone. MMI also has an automated phone system to help route after-hours calls and to handle emergency responses.
All that is fine, but today is the Internet age. MMI has state-of-the-art, Internet-based software to enable its managers to have full access to our systems 24/7/365 from anywhere in the world. Some levels of access are open to board members, community attorneys, and residents. Our online portal enables residents to view their accounts, make payments, submit and monitor maintenance requests, submit and monitor architectural change requests, view violation notices and violation photos and view governing documents, contracts, meeting minutes and agendas, a community calendar, and manager messages. This system also helps keep printing and postage costs down by disseminating notices electronically to those owners who opt for e-communications.
Someone is always “on-call” at MMI. If there is an emergency, there will be a local response to an emergency voice message. MMI has been involved in emergency response to fires, floods, and other systems failures for over 30 years. We know what to do when disaster strikes and we will take the lead on managing the disaster.
We see this in the many area communities. Whether the real lack of leadership is at the management level or the board level is not so easily observed from the outside. What we do see is that board members often get involved because they have good intentions, but they are never told what to do. Sometimes, the board member has a personal agenda; one that is not in the best interest of the community. The rest of the board needs to be strong and face this challenge.
Your community is referred to as a Common Ownership Community. They come in many forms: Home Owners Associations, Condominiums, and Co-ops. Commercial and Residential. Garden style, mid-rise, high-rise, townhouse, and single-family. With each form of ownership and with each configuration come different needs and different rules and laws under which they operate.
In Maryland, there is the Maryland Condominium Act and the Maryland Homeowners Association Act. If the community is incorporated, there is the Maryland Corporations & Associations Act. After the law comes to the governing documents: the plat, the articles of incorporation, declaration, bylaws, architectural rules, and general rules and regulations. So, you become a board member and all that information simply becomes a part of your knowledge base? Of course not. Management’s duty is to be informed and to guide the board into compliance with these regulations. The board’s duty is to heed the advice when it relates to mandatory operations. When management is uncertain, the association’s legal counsel is the appropriate resource.
MMI and the Community Associations Institute offer board member training programs. Community associations must conduct most business in an open forum, but that does not mean a literal democracy nor a brawl. Roberts Rules are generally followed in board and community meetings and a working knowledge of these techniques will help keep the board on task. MMI will work with your president to ensure that an agenda is prepared and distributed in advance of each meeting. MMI also prepares a Board Packet containing any advance reading materials your board members need in order to be prepared to act at the meeting. This may include proposals, budgets, or correspondence that will be on the agenda. If board members take a few minutes to read the information, the meeting will flow much more smoothly.
When the board members, individually and collectively, work with the best interests of the community at heart, their success is virtually assured. There are several tools available to help in this respect:
The Management Plan – How can you achieve a goal if you don’t know what it is? The management plan contains goals and objectives for administration, physical maintenance, and financial planning. Often, it takes an hour or two to develop a basic plan, yet it is rare to find a community with such a plan. MMI will work with you if you will work with us. We want to boast of our successes as much as you.
The Budget – After you know what you want to do, you have to fund the program. Naturally, the best time to be working on your management plan is budget time–or is the best time to work on the budget when you are working on your management plan? The budget is done out of necessity on an annual basis. The management plan is an on-going, never-ending project that is always in a state of development and always subject to modification as the budget dictates.
Book of Resolutions – Why must every board re-invent the wheel? Why does everyone look at each other at the annual meeting and ask, “How many do we need for a quorum?” Resolutions are simple, one-page documents that store the basic operating instructions for your community. After you research the annual meeting requirements, set them down on a resolution for easy reference year-after-year. After the board decides on a collections policy, set it down in a “Collections Resolution” for all to see and for all subsequent boards to follow. Yes, subsequent boards can make changes, but they will have to take an affirmative step to enact a change. Otherwise, the policy stands. There are dozens of resolutions that can help your board avoid spending time on simple administrative matters leaving more time to get things done. Guiding the board to enacting effective resolutions is a major facet of MMI’s Fresh Start program. Whether your community is just coming out of developer control or you have been operating in a disorganized manner for 20 years, now is the time for a Fresh Start.
Committee Charters – Another Fresh Start component, these documents establish the purpose, duration, leadership, and budget of committees. They can be used for Ad Hoc (temporary) committees or permanent committees. When you ask for volunteers to staff these committees, the Charter will tell them what they are signing up for. The Charter establishes the chair, the purpose, duration, and budget for the committee.
Great! This means people are passionate about their community. When people are angry; when people are fighting, we have something to start with. We have people who are passionate about their community. All we need to do is to get them on the same page. Most decisions are no-brainers. We don’t have to decide whether to have snow removal service; only who will do it. We don’t have to decide whether to repair a roof leak; only how and who will do it. When we have all set-aside our personal agendas; when we have all agreed to act for the good of the community and without personal gain, we can make the right decisions together.
Large projects go through the bidding process. Bids are solicited, analyzed, and presented. References are checked. Contracts go through a review process. Then, the decision is clear and, most importantly, defensible against claims of unethical conduct from the membership. MMI has developed management plans and presented the program to the community in a PowerPoint presentation making it photo-clear that a community needs help. At the end of the meeting, there remains no question as to whether we have a problem and the proposed solution is presented, along with estimated costs. Input is sought from the membership in an open forum and all go home knowing that management and the board are acting in harmony with the best interests of the community at heart. Argue that! Sometimes, those who are most vocal and most angry can be brought into the program as constructive participants. That’s what we were looking for all along!
So, let’s get the fighting out of the way. Let’s argue about the plan. Let’s create a plan from which the board will govern and the budget will be set. Later, when objections are raised, let’s have a plan to which we can refer. When we can say that we worked together to develop a plan and that we were committed to achieving the goals of the plan and that this latest wrinkle is being analyzed for how it best fits into (or out of) the plan, there seems to be little to argue about. Why? Because we have a goal and we have a plan and we have passionate people to help. Put them to work on committees!
Now you know what the MMI A Fresh Start for Your Community® is all about. Planning and budgeting. Decision-making and leadership. Creating harmony through participation. Working together toward an established goal rather than fighting and arguing about details. Governing in an open, inviting, but firm manner rather than dictating and demanding. Educating the board and the community about what is best for this most major investment—and the place you call home.