20+ years! How’s your experience of MF increase vs inflation?
Properly budgeted MF should account for this from the year first built. Proper budgets include both current expenses and reserve budgets. The reserve budget should include future replacement of necessary items and anticipated major capital improvements over time.
That math doesn't really work out if you think about it critically. If you assume a cost of $1,000 annually as a starting point and a 5% inflation rate, the next year's cost would be $1,050. The initial management fee would be $100. The next years management fee would be 10% of $1,050, or $105, which also happens to match an increase of 5%, which is the inflation rate. The total cost for the years would be $1,100 the initial year and $1,155 the second. $1,155 is a 5% increase over $1,100 if I've done my math properly - yep, my calculator confirms that.
This seems a somewhat rational explanation. It could also be related to needing more accommodations for an aging population or the imposition of additional requirements by whatever governing authority decides we need to do more maintenance/improvements.
You got the math right, but the reading wrong. I said 10% of the cost increase, not 10% of the mf. The cost increase in your example is $50, and the management fee increases by $5, which is 10% of $50. If I got my math right.
We seem to be speaking past each other. I merely chose $1,000 as an easy to use number. It could easily have been $100,000 or $1,000,000. If the underlying budget of $1,000, $100,000, or $1,000,000 goes up by 5% and the manager is getting a 10% fee, the manager's fee will go up by 10% (i.e., the $5 we both calculated). I would be shocked to see a situation where the manager gets a different percentage of the increase than they do of the base budget. I merely assumed that you were referring to a situation where the manager's fee is 10%. If the HOA board at whatever resort you are speaking of has approved a higher percentage of cost increases as the increases for the management fee, they would have set up an incentive system for the manager towards higher costs. Frankly, I would have a difficult time drafting contract language to accomplish that in a manner that would make it seem simple. Have you seen any contract language that would accomplish that?
This is what led me to believe that you meant the manager receives 10% of the underlying budget, by the way. That contract model would support an increase in the management fee of 10% of the cost increase, yielding an overall increase that matches the rise in costs percentagewise. It doesn't really matter if you calculate the management fee by taking 10% of the year 0 underlying budget and add 10% of the cost increase from year 0 to year 1, or take 10% of the year 1 underlying budget, or take the year 0 management fee and increase it by the same percentage as the increase in the underlying budget. They all yield the same result.
It is possible that the manager has labor costs that rise from year to year as well as overhead costs, etc. Please don't come away with the impression that I am defending the rise in management fees - I just think we need to be realistic and recognize that inflation affects all of us, including management companies. I did appreciate it when Ft Lauderdale Beach Resort recognized the excessive fees for poorer service from its management company and severed that contract in favor of a different one. I don't think we'll find any management companies out there that will manage for the same bottom line dollar amount that they would 20 years ago.
You are exactly right. The three biggest drivers of cost increases are Labor, Utilities, Taxes.
No one wants to pay more but.....
That would be four, not three....
