Rental pool on example of apartment rental
A rental pool, also known as an investment program, involves property owners pooling their assets into a collective pool managed by a professional company or organization. This program allows property owners to generate rental income without actively managing their properties. Profits are distributed among property owners based on various factors. This is the model commonly used by hotels.
When renting out apartments through a rental pool, several key points can be highlighted:
Pooling of Properties: Property owners joining the rental pool program agree to lease their properties through the pool. These properties are often part of a larger complex, such as a hotel or condominium. Typically, all units in the complex are pooled, although sometimes specific criteria like view or size are considered.
Management: The management company is responsible for advertising, leasing, maintenance, and overall management of the properties in the rental pool. Tasks may include cleaning, repairs, marketing, and guest services.
Income Distribution: Rental income generated from the pooled properties is distributed among the property owners after deducting management fees, maintenance costs, and other relevant expenses. The distribution is usually based on a predetermined formula that may consider factors such as the cost and size of the unit.
Usage and Accessibility: Property owners often face restrictions on when they can use their own properties as they are rented out to guests. There may be periods during peak rental seasons when owners cannot use their units.
Advantages and Challenges: A rental pool can provide property owners with a hassle-free way to generate rental income without actively managing their properties. However, it's important to understand that the success depends on the overall performance of the complex.
Let's take a look at how this works in the example of various types and sizes of apartments in the Serene eco-condominium:
The project offers a combined income program that includes a guaranteed income of 5% + rental pool.
In the Serene complex, each participant is added to the rental system by the management company. The company takes care of all aspects of managing the apartments in the complex, including check-in, check-out, marketing, and more.
Now, we have 5 types of apartments:
- Studio, 28 sq. m, average cost $128,000, average daily rental $57
- Poolside studio, 31 sq. m, average cost $137,000, average daily rental $70
- One-bedroom apartment, 38.7 sq. m, average cost $177,000, average daily rental $100
- One-bedroom apartment, 39.7 sq. m, average cost $182,000, average daily rental $100
- Two-bedroom apartment, 60.3 sq. m, average cost $271,000, average daily rental $143
The total area of all apartments is 197.7 sq. m, with a total average cost of $895,000 and a total average daily rental price of $470.
Assuming an occupancy rate of 50%, which is 182.5 days per year, the expected total gross revenue is $85,775. Multiplying the 5% guaranteed income by the total average cost of the apartments gives $44,750. Subtracting the guaranteed income from the total revenue gives $41,025.
Next, deducting maintenance expenses (water, electricity, cleaning) at 30%, the net profit is $28,717. Subtracting the 30% management company commission leaves $20,102, which, when divided by the total area of all apartments, gives a profit per square meter of $101.
Now, we calculate the profit for each type of apartment participating in the rental pool:
Studio, 28 sq. m: Guaranteed income 5% - $6,400, rental pool income $2,828, total income $9,228, or a 7.20% return on investment.
Poolside studio, 31 sq. m: Guaranteed income 5% - $6,850, rental pool income $3,131, total income $9,981, or a 7.28% return on investment.
One-bedroom apartment, 38.7 sq. m: Guaranteed income 5% - $8,850, rental pool income $3,908, total income $12,758, or a 7.20% return on investment.
One-bedroom apartment, 39.7 sq. m: Guaranteed income 5% - $9,100, rental pool income $4,009, total income $13,109, or a 7.20% return on investment.
Two-bedroom apartment, 60.3 sq. m: Guaranteed income 5% - $13,550, rental pool income $6,090, total income $19,640, or a 7.24% return on investment.
Here, we see that the average percentage return from the rental pool for each owner is roughly the same.
Participating in a rental pool program can provide property owners with an opportunity to generate income from their properties without actively managing them. However, for successful participation in a rental pool, it's crucial to understand how the management company conducts marketing, manages properties, and distributes income.
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