Service Fee in a Complex: How to Include It in the Investment Model

Why the service fee matters to an investor 📌

The service fee (HOA/management fee) is a recurring operational expense that reduces net returns from a residential unit. Underestimating this cost can turn an apparently attractive yield into a marginal investment.

What the service fee commonly covers 🧾

• Common area maintenance: cleaning, landscaping, lighting.
• Security: guards and CCTV.
• Shared utilities and waste management.
• Routine repairs and a capital reserve for major works.
• Building management: administrative and staffing costs.
• Optional services: concierge, gym, laundry.

Different complexes include different sets of services. Always confirm what is included and what is billed separately.

Step-by-step: include the fee in your investment model ✅

1. Gather documents. Ask the developer or management company for the current fee schedule, budget breakdown and sample invoices. If unavailable, use comparable buildings as a reference.

2. Standardise the metric. Convert fees to a per‑m2 (or per‑unit) monthly figure so you can compare across properties.

3. Split costs into fixed and variable components. Fixed costs are easier to forecast; variable costs depend on usage and seasonality.

4. Build a capital reserve line. Even new buildings need funds for larger repairs. Model a monthly contribution to a reserve within the service fee.

5. Apply escalation. Include realistic annual growth in the fee (inflation plus possible service cost increases) and test sensitivity.

6. Run scenarios. A base case, a best case and a stress case will show how fee changes affect yield and payback period.

Practical assumption examples 💡

• Express fees per square meter to compare assets of different sizes.
• Assume modest annual escalation rather than fixed zero growth.
• Include a reserve contribution rather than assuming zero capital expenditure.

Conservative assumptions reduce the risk of overstated returns.

How the fee affects net yield and pricing 📊

Service fees directly decrease net rental income and increase holding costs for owners. When comparing properties, use net yield after all operating expenses. Some fees can be partially offset by offering paid extras to tenants (parking, premium services).

Due diligence checklist before purchase 🔎

• Request the management agreement and the fee schedule.
• Check the mechanism for fee changes and who approves them.
• Ask about the existence and size of a reserve fund.
• If possible, see actual bills from current occupants.
• Include a risk adjustment in your financial model.

Negotiation and legal tips 📝

Review legal documents for rules on fee adjustments and governance of the management company. At the pre‑construction stage, try to secure clearer formulas for future fees or limits on indexation.

Bottom line — practical next steps for investors 🔧

• Do not ignore the service fee; it affects cash flow and liquidity.
• Model fees with reserves and escalation and run sensitivity tests.
• Ask the right questions to developer/management before committing.

If you want, BuyHome can help model a specific property including service fees and prepare conservative assumptions for a reliable investment decision. Contact us for assistance in choosing the right property: https://buyhome.ge/en/apartments