Associations improve cash flow by renting out units

Mitch Drimmer, CAM

Has it been too long since you’ve last seen a payment for a particular unit or, in many cases, a group of units in your condo or HOA? These units should not be classified simply as “delinquent” but, more importantly, as “non-performing.”

This inventory should be producing revenue for your association, and the only way that can be done is for the association to foreclose and rent them to qualified tenants.

This is a hard business decision to make but because so many banks are not taking back foreclosures, the association shouldn’t allow these units to “ lay fallow.” After all, the rental market is hot right now and if foreclosed units are handled properly by real estate professionals, they can be the ticket to stabilizing your association’s cash flow.

The first step: have your collection procedure (collection agency or attorney) move forward as fast as possible to foreclose and take intervening title to all delinquent units in your association. This gives your association the right to lease these units, regardless of rental restrictions for individual owners that may be in the governing documents.

(Most lawyers agree that once an association forecloses and takes intervening title on a foreclosed unit, it is not obligated by rental restrictions impeding individual unit owners).

The second step: engage a professional real estate company to prepare a unit for marketing, screening tenants, maintaining the unit, collecting the rent and act as the landlord on behalf of the association.

“Necessity is the mother of invention” and many real estate companies have developed programs especially designed to fill these needs. They’re out there, eager to manage this business. So if your board of directors is dreading the idea of acting as a landlord, plenty of property management companies will do this for a percentage of the rent. Some community association management companies already have rental programs to serve their client associations.

Many fear that by leasing foreclosed units, the association will lose control with undesirable renters who have little or no regard for the community itself. The fact is that your real estate property manager can screen renters and your board has a right to refuse any application. In fact, your community association has more control over renters than over those who purchase vacant units.

Like it or not, converting foreclosures to leased units is the smart way to improve cash flow and keep community maintenance fees down. If foreclosed units remain unproductive financially, good-paying owners must necessarily make up the shortfall from delinquent units. And that’s when communities begin to lose value.

Inadequate cash flow will cause either reduced services or increased maintenance fees. The message is clear to association boards: now is the time to take positive action and get those foreclosed units rented out and the money coming in.

Mitch Drimmer, a licensed CAM and FCAP instructor,, is Vice President of Association Financial Services, an accredited collection agency, specializing in finance, business process outsourcing for community associations. For more information, visit www.associationfinancial.com tel: 305- 677-0022, ext. 804.

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About

Mitch Drimmer is a licensed CAM and is the Vice President of Association Financial Services, an accredited collection agency, specialty finance, business process outsourcing, and specializing in community associations. For more information, visit http://afslc.com or tel. 305-677-0022x 804 or email mdrimmer@afslc.com


1 Comment for “Associations improve cash flow by renting out units”

  1. Ken Kaufman

    Better increase your budget line item for Legal Expenses. The fees to file a foreclosure are almost $2,000 and by the time your done with your association attorney, the association & its membership will be in the hole for about $6,000.00 for each foreclosure. And as you continue to rent out these units the Law Of Unintended Consequenses kicks in, in that the association & its membership are changing the Ratios of Owner Occupied units with renters, which will affect the financial recovery of lost homeowner equity as Fannie & Freddie will not lend money in those communities who do not meet their guidlines for purchases and the refinancing of loans. The other question is, does a family knowingly moved into a unit that is subject to foreclosure?? Would You?? So you say you give them cut rate below market rental rates. How does the unit owner who rents his/her unit compete with that?? Now you caused another problem in that the homeowner who rents can't collect enough rent to pay their mortgage and the associations assesment. How does that work for solving non performing units who are not paying??? Foreclose & Rent is too simplistic an answer.

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