Portfolio Management–How it Works for HOAs

One of the most consistently misunderstood concepts in property management that I see is the basic understanding of so-called “portfolio management”–the use of a single property manager to manage a number of different communities, usually unrelated to one another.  For many small communities, and especially HOAs, this is the only affordable way to secure a professional property manager.  But it’s important that board members understand the concept of portfolio management, and how it’s intended to work.

Many smaller communities do not have enough day-t0-day work to justify the use of a full-time, on site property manager.  So the alternative option that has been developed by management companies is the portfolio manager–a professional manager who handles multiple properties, spending her days juggling multiple issues of multiple clients.  But for many neighborhoods, this is the only affordable way to have a professional property manager service their community.

The problem that occurs most frequently is that HOA boards sign a contract for portfolio management, but then expect the same level of service they would get from a full-time manager, including instantaneous response to questions or issues.  But a quick lesson in management economics will explain why this type of response isn’t always possible, and demonstrate exactly what boards can expect when they enter into a portfolio management arrangement (regardless of what is promised by the management company).

Let’s assume that a competent portfolio manager can make $60,000 per year, a reasonable number in many markets.  The cost to the property management business is far higher–they have to pay taxes like fica, insurances (liability, worker’s compensation), health insurance, and office overhead.  That $60,000 per year manager is really costing the business at least $100,000.

So let’s assume that your community has signed a portfolio management contract with a management company, and you are paying $20,000 per year for that service, which also includes full accounting support and collections.  How much of that manager’s time can you reasonably expect to be getting, and still allow the management company to make money?  No more than a fifth, certainly, and that’s totally ignoring the cost of accounting functions.  If a typical manager works a 50 hour week, you should expect to be getting 8-10 hours of property management service, at most, per week to allow the management company to, frankly, operate without going out of business.

Now, many, if not most, management companies will never bother to explain these economics to their clients.  They sell portfolio management because it’s affordable, and because it’s appropriate for a large percentage of small communities, but they never bother to temper expectations in any amount.  So boards often enter into these contracts assuming that they are essentially getting full-time, full-service property management for a tiny fraction of the price of hiring a full-time, on site manager.  But basic logic tells us that such a system can’t possibly be sustainable for the company.  So whether or not they’re telling you that the manager’s time will not exclusively be spent on your property, it won’t.  It can’t, or the management company will simply go out of business, unable to sustain its costs of operations.

Unfortunately, management companies are put in a very difficult double bind.  If they are the honest one that, up front and in the contract, admits that they are not providing full-time service, their contract will often be passed over for a contract that ignores this truism.  But the fact that another management company has failed to expressly limit the client’s expectations to full-time service does not change the basic economics–you cannot get a full-time property manager and full accounting services for $20,000 per year.  It doesn’t matter what the contract says, it doesn’t matter what the company promises–it’s basic math.

So what can a board expect, and how can a board make portfolio management work for them?  A good portfolio manager (which is it’s own specialty, really) is an expert juggler.  He or she should be able to prioritize every issue that comes in from every property, and make sure that they are all handled in a reasonable timeframe–emergencies are treated as emergencies, longer term projects might be put on the burner to simmer for a while.  But there’s no reason that a portfolio manager can’t complete all of the work needed for a smaller community or HOA in a competent and timely manner.  It does, however, require some understanding and reason on the part of the board.  It’s not fair to call your portfolio manager and ask them to drop everything they are doing for every client and deal with a whim of the board that has no actual time pressure.  It’s all a question of communication.  If something is genuinely an emergency, then tell the manager it’s an emergency.  But if it’s not, trust your manager to use her best judgment to determine when and how to complete the project, within a reasonable time frame.  It’s important to accept that, without a full-time manager, projects may take slightly longer to complete, but they will get done–it just takes a little patience.

Portfolio management can be an excellent solution for a large percentage of properties–it reduces the cost of professional management dramatically, and in communities where issues are sporadic it’s really the only economically feasible way to afford a manager.  But don’t be fooled by management companies who promise full-time, on demand management for a fifth of the price of having someone on-site.  There is just no possible economic way to make that work, and you can be assured that, if you expect to get this kind of service, you’re simply going to end up disappointed.  Accept portfolio managers for what they are–competent, professional property managers who are experts at prioritizing the needs of multiple clients and making sure that your property is managed properly and effectively at a very reasonable cost.

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One Response to Portfolio Management–How it Works for HOAs

  1. hoavault says:

    An excellent article with some very good points.

    But what about productivity and technology? There is nothing that says that HOA management has to be as manual a process as you describe. True, a portfolio manager with 5 HOAs only spends 8 hours or less per week on individualized attention to those HOAs but many tasks can be automated or computerized such that they can be shared across all the managed HOAs. At face value, it is reasonable for HOAs to expect good management for a lower price … because productivity and technology allows managers to be more efficient when managing multiple HOAs instead of devoting themselves completely to one HOA.

    But productivity and technology gains aren’t realized if managers don’t care about them. Under-performing and over-promising on contracts doesn’t do anything for productivity or technology.

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