Making money off of high HOA fees

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MrMan
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Joined: July 30th, 2014, 7:52 pm

Making money off of high HOA fees

Post by MrMan »

I don't know if there are enough business-minded people to get feedback on this.

I'm getting ready to move to a neighborhood that has way-above-market HOA fees. It's not enough to deter my purchase, but certainly an annoyance. At some point not to far down the road, this stuff should fall into the hands of the owners. From my inaccurate count of the houses on the map, I think the HOA management gets $175,000 a year in fees. I can't see how cutting the grass, trimming the trees and cleaning the pool really costs that much. Fees are nearly double some of the HOAs around here, including a complex with a pool and a playground, which we will not have.

I could either lobby for finding a company with lower fees, maybe half or 45% of what we are paying now. But I am thinking of something more creative:

I am thinking of this:
1. Volunteer to be on the HOA board.
2. Finding an eager, honest, skilled manager in the lawn care or HOA business with sales experience to run a small company.
3. Sending out notes to all HOA members with a plan to turn the HOA fees into an investment into a small HOA management company with startup capital for one year.
4. Any member can double their investment to get two shares.
5. Create an LLC.

I'm thinking if I put the deal together, I could try to take some extra stock for myself or set it up as a member-managed LLC with me as the manager to oversea the manager actually doing the day to day work. I'm not sure how many owners/investors would take two shares to raise our capital. I could structure it where we had $300K-- or whatever we needed for operations plus growth. My salary could be small, maybe $10K, or a bonus based on an agreed-upon profit target. The day-to-day manager could have the same target, with a low but livable salary and stock. Maybe I could find investors who want to get into this business with a guaranteed neighborhood to co-own half or 51% of shares with and split the rest with the residence.

Then we have a management company with one big, nearly guaranteed client. The company could offer services to other neighborhoods as the number of developments grow around here. As an owner for a closely-held/private company, I would want guaranteed dividends at certain intervals or the right to force a sale. Maybe we could keep the money in the company as capital for five or six years so it can grow.

There is a housing shortage, tighter than the rest of the country around here, and new developments are springing up.

The key would be human resources, finding someone who could manage this and also go sell services elsewhere. His share would have to be enough to motivate him, hopefully with a relatively low salary to start because of the upside potential-- maybe $50 or so.

Another alternative would be a flow-through LLC. That might keep our cash-gobbling LLC from paying taxes, but if we retained earnings, our owners would be taxed on them without seeing the funds. This would have to be disclosed upfront and I would have to guarantee that enough of the ownership supported it to stick with that strategy. My guess is we do not have a lot of businessmen in the neighborhood.

Does anyone have experience with anything along these lines, structuring a business like this, large-scale lawn care costs/prices in the US, or managing an HOA?
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