If you own a rental property in a condo, joining a rental pool, makes sound financial sense. Not only does it minimize risk and guarantee a monthly income. It is a much easier way of managing your properties and is cheaper than going it alone.
What is the rental pool?
A rental pool is a legal contract that is formed when any two (or more) parties agree to share something. This can apply to just about anything such as equipment sharing but is most commonly used in real estate and especially condominiums. With a rental pool arrangement, the individual condo owners who are looking to rent out their units, pool their rental income and their expenses together into a single financial unit, leaving a third party management company to handle lettings, day to day management and maintenance.
A rental pool gives greater security to owners because it helps guarantee a monthly income and it decreases the risk if anything untoward were to happen. A rental pool shares in the profits but also the losses so provides greater peace of mind and security. These are calculated on a pro-rata system depending on how many individual units you own.
The benefits of joining a rental pool
A rental pool will help you keep the costs down of running your rental property. This is because the management costs are much lower if a management company can handle multiple properties (or the entire condo building) as a pool and fit them into one portfolio.
This means that any lettings, maintenance, advertising, financial administration, banking fees, and everything else can be carried out more easily by the one company and these savings will be passed on to you. In general management, costs can be around 4% cheaper if you join a rental pool.
In addition, a rental pool makes the whole business of owning rental properties much easier. The rental pool management company will handle any issues and day to day concerns. For example, if your unit is empty, the company will deal with advertising the property and finding new tenants. The whole set up enables owners to enjoy their investment without having to get hands-on with the niggling issues that can often be a major part of owning rental properties.
What are the costs of a rental pool?
In general, a management company will charge around 10% of the collected rent. There are also fixed monthly costs that are paid by the rental pool which include the monthly condo fees, maintenance, unit repairs, painting or appliance repairs (which you would need to pay anyway).
These are all handled by the rental pool and are calculated on a pro-rata basis. Because the rental pool is a larger entity than an individual private owner, it means that any work can be carried out on multiple units if necessary and will keep prices down.
You still need to have your own insurance in place as the rental pool will not cover insurance or have anything to do with your mortgage payments or property tax
How do I join a rental pool?
Many condos already operate rental pools so in general, you can join as soon as you decide to rent out your unit. Usually, the management will inspect and will need to approve your unit before you start.
Some condominiums require that you join a rental pool as part of their terms and conditions so it is important to check through these before you start advertising your unit for rent privately.