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Preparing an annual budget is by no means an easy task. Those charged with preparing condominium or HOA budgets will soon begin reviewing costs, gathering data and projecting expenses for the coming year. However, this past year has caused many communities to reflect on the lessons learned from both the ongoing pandemic and how it factors into new cost areas, as well as the recent tragedy in Surfside, Florida. The pandemic affected finances and caused communities to spend a lot more money than they were expecting in various areas.
For example, communities had to buy personal protective equipment for their common areas such as lobbies and security desks. Communities also had to purchase significant amounts of cleaning supplies, especially hand sanitizer and dispensers, as well as other important disinfectants, to keep common areas clean and safe. Many purchased plexiglass barriers and other equipment to protect their employees, which are not considered major repairs or replacements. Therefore, these items were not eligible to be charged to the reserve fund and had to be taken from the operating fund. Many of these COVID-related costs which were unbudgeted caused negative variances in the operating expenses.
Water is absolutely the largest single negative consequence of this pandemic. Since many residents have stayed home to work over the last year, there has been a tremendous increase in water expenses. Increases of anywhere from 10 percent up to 40 percent are showing up, according to a recent CAI survey. That being said, in some newer condos, the owners pay for their own water consumption so it would only affect the individual homeowner.
Cleaning contracts and concierge/security contracts have increased in many communities in order to ensure common areas are safe and sanitized. Given that these contracts are usually fixed monthly amounts in community budgets, an increase in these services will have an immediate and negative impact on the year-end financial results. There was also a loss of revenue for communities that relied on party room rentals, the income of which helps to offset some of the operating expenses each year. To add insult to injury, insurance increases in many condominiums have been significant, ranging from 10 percent to as much as 30 percent in the past year.
The important lesson is strategic planning and budgeting. We support the concept of the board of directors leaving a “cushion” in the operating fund or creating a contingency fund to leave some money aside for unexpected events. One best practice is keeping budget folders for upcoming years to understand proposed projects and contracts for each year and the changes that might be required in each budget. A reserve study can be done as a first step to help set the budget for capital repairs and replacement projects.
It is also wise for the manager and board to contact the association’s current vendors – particularly the insurance agent, utilities, waste services, and others – to ask them if there will be a cost increase in the coming year, and if they can provide an estimated increase amount.
Starting the budget planning process early is key.
For more information, visit kwpropertymanagement.com; KW PROPERTY MANAGEMENT | 8200 NW 33rd Street, Suite 300, Miami, FL 33122; 786.218.5236
KW Property Management
