Condo Media - July 2014 - 32

COVER STORY
COLUMN NAME
the unit before it could be rented again
pretty much wiped out the income for
more than a year, Brawley says. While
the association was able to increase the
rent for the new tenant, on balance,
she says, "this hasn't been a great deal
for the association." The loss of rental
income and renovation costs had an

visitors or as a rent-free perk boards can
use to attract a live-in superintendent.
Neither option would generate revenue directly, but the superintendent's
apartment could affect the association's
budget indirectly by reducing the superintendent's salary.
Parking spaces can also be a source of

Allowing non-residents to use association facilities
for a fee is another potential revenue source for
associations but a decidedly unpopular one.
impact on the community's financial
position.
Another community had a better
experience with two units it acquired
in an attractive deal with the developer,
who was anxious to get rid of them.
The board sold the first unit easily
booking a good after-tax gain, which
it used to bolster the community's reserves. The plan was to sell the second
unit as well, after holding it for a while,
expecting values to rise.
But the market collapsed instead,
forcing the association to continue
renting the unit for longer than expected and producing less of a gain
than hoped.
This illustrates the downside of
acquiring investment property, Brawley
says. "You can't predict market conditions, and you can't always sell when
you want." Nor can you necessarily
count on netting a profit when you do.
McBride thinks these are reasons
community associations shouldn't be
in the real estate investment game. He
believes associations should be riskaverse. They could be on "very thin
ice" if real estate values decline and the
gain they're anticipating turns into a
potentially significant loss instead.
Although the rental income an investment unit produces can be attractive,
most boards don't want the headache of
being a landlord, Hugh Shaffer notes.
But some communities purchase units
for other reasons: to provide a guestroom that owners can make available to
32

Condo Media * July 2014

direct rental income, less lucrative than
rental units but also far less problematic.
To pursue this option, the association
must have excess parking spaces available
and the ability to reclaim them if necessary. Attorneys suggest including a provision in the contract reserving the right to
terminate the rental agreement should an
owner want the parking space.
Converting unused space into storage areas owners can rent is another
option for communities that have the
space available. But someone must
oversee the construction work (if
required) and manage the rentals. "We
would do that for a client," McBride
says, "but we would expect to be compensated for the additional work."

Association Amenities

Allowing non-residents to use association facilities (swimming pools, tennis
courts, clubhouses, exercise rooms,
etc.) for a fee is another potential
revenue source for associations but a
decidedly unpopular one with most
managers and boards.
Owners typically view use of the
amenities as a benefit of living in the
community and resist - or resent -
the idea of offering access to nonresidents, especially if that results
in overcrowding or over-use of the
facilities.
In addition to the possibility of annoying or inconveniencing residents
(if the pool is crowded or if they have
to wait to use the exercise equipment),

there are also cost and liability concerns. At a minimum, Brawley says,
you will be increasing wear and tear
on the equipment, increasing repair
bills, and accelerating the replacement
date.
On the liability side, there is the general concern that non-residents might
be hurt or harm someone else. The
broader the access to the community's
facilities, McBride says, the greater
those risks.
For example, allowing public use
of the swimming pool might alter the
association's insurance requirements or
trigger local health and safety requirements, which would increase the
association's costs as well as its liability
risks. For that reason, McBride says he
is "not quick to advise boards to go
down that path."

Fines

Some boards view fines imposed for
rules violations as a potential revenue
source, structuring their fine schedules
and (to some extent) their rulemaking
with that idea in mind.
Like most managers, Brawley doesn't
think much of that strategy. "It's
perverse. You don't want to be hoping
people will violate the rules" so you can
increase the association's income, she
says. "It just feels wrong."
Boards that depend on fines to meet
income goals might also become overly
aggressive about enforcing rules, which
might be good for the association's
budget but would not be helpful at all
in developing a sense of community
or encouraging a positive relationship
between owners and the board.

A Few Cautions

Industry professionals generally agree
that it makes sense for boards to consider alternative sources of income -
there is certainly no reason not to do
so. But they also add these cautions:

Be realistic about the income
prospects of any initiative you
consider. "I've never seen a revenue source that was so fabulous it

Condo Media - July 2014

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