Inflation has affected pretty much everything. From shopping online to shopping at your favorite mall. You get into a supermarket to get your favorite groceries and you either find them in reduced, smaller packs or with increased priced tags. You order an item online, and you get a call that it cannot be delivered at the stipulated time, or that you need to pay more. This phenomenon that causes a shortage of things or the increase of prices affects everything including condo associations. Most associations plan condo budgets using fixed monthly fees. During expansion, some condo associations plan the trajectory of growth using those fees.
Inflation also hit condos hard on their reserve funds, and the contributions needed to keep healthy reserve funds – this is the most important part of the budget because it deals with the overall maintenance – repairs, and replacement – of condos. Most times, the reserve fund is updated every 3 years based on current and past costs, and inflation rates. What then happens when inflation rates hit higher than before? Well, we will explore some of the ways that inflation affects condo association budgets.
The potential rise in dues
Conventionally, homeowners pay a certain due monthly, quarterly, bi-annually or annually depending on what works best for the association. They are also aware that these dues may increase or reduce depending on new projects and maintenance needs. Depending on the condo, there can be a set limitation to the level of raised dues. This is why it is necessary to always refer to governing documents, bylaws, and CC&Rs before any decision is made.
Also, inflation affects everyone because the buying power of money reduces significantly while the prices of things continue to go up. So it becomes difficult to ask for dues from homeowners who may be struggling from similar inflation effects on their household budgets. Most condos do not have a choice because the price of repairs, maintenance, new projects etc keeps rising. This is where community management and rapport pay off. At every point in time, condo associations should always ensure to maintain good communication with homeowners. This also involves an inclusive decision-making process.
Change in planned budgets for projects
Condo projects and tasks that have been assessed but not implemented are expected to see an increase in prices. Reserved funds sometimes help to cushion these increases especially when the HOA uses the Customer Price Index to distribute its budget. But in cases where the reserve funds cannot help, HOAs can postpone such projects or make necessary amendments to the size and scale of the project. You may also have to consider HOA financing to seek funds that can get your project completed.
Redrafting reserve funds
Reserve funds will need an overdraft in their goals since projects are affected by the inflation rate. The margin on dues allocated to reserve funding will need to change to accommodate increasing supply and maintenance costs.
Labor and contract costs
Inflation comes with both shortages of labor and a high cost of labor. Most condo associations employ the services of janitor and maintenance superintendents either individually or through agencies. With inflation, contract agreements with those agencies may change, and independent labor can become costly. Hence, associations need to consider other alternatives like employing in-house services as long as the benefits outweigh the costs.
No matter what, maintaining the standard of a condo is crucial for continuity. Maintenance can also become targeted to physical aspects of the building and the only way to ensure proper attention is through the expertise and competence of a good maintenance worker.
The direct impact of inflation puts off condo associations and rattles the decisions of administrators. In such cases, condo managers should not feel helpless or relapse with complaints that lack actionable, solution-driven steps.
Yes, inflation is out of your control, so the focus should be on the things they can control – adjusting budgets to restructuring the accounting of funds and dues, planning new ways to get funding, and how best to manage labor and maintenance costs – should be the goal of every condo association during inflation.
At Core-Acct, we specialize in condo financial management to help condo managers and owners to always ensure financial strength and stability in their condo community. We understand that financial strongholds best support condo associations and push them to success. Our experience with condo associations is geared towards building long-term value in the community to always secure the financial position of the condo association. If you need our help with your accounting processes, feel free to reach out to us, we will answer any questions you have.