Most people may have one or two rental properties and manage them themselves. They have to deal with all of the issues that renters will put land lords through and sometimes they even lose money over the deal as well. This can be from damages caused by the renter or perhaps the market just did not increase enough to compensate for all of the carrying costs and maintenance fees. There also this feeling by renters that landlords are rich and can afford to lose a month’s rent or perform repairs to things that have been damaged. Some also think that by walking away in the middle of the night they can actually get away with it. They can be found and charged and most are, but who really wants to go through that?
Some land lords will group together under rental property management programs and agreements. These are known as rental pools in some circles and have a great advantage of spreading the risk across a number of owners. Cash flow is always maintained, although it does vary. There is never a month were you have zero cash flow, such as when your unit might be vacant. This is an excellent advantage when you have taxes and a mortgage to pay every month.
How Rental Property Management Programs Work
There are likely all kinds of rental property management programs, however the one that this writer has had experience with is the rental pool program. Basically it works by all owners pooling all of their rental money into one account. All expenses to manage the condo or apartment building are paid out of it. This includes all common expenses, such as common lighting, garbage disposal, landscaping, condo fees, and rental expenses such as advertising.
The rental pool also pays for units that are vacant for the month. They also pay for expenses associated with going to small claims court to claim rent that has not been paid. In most cases a property manager is hired to manage the rental pool and all renting of the units. There is a board of directors for the rental pool separate from a condo board. The rental company is contracted to manage the rental pool, to pay all expenses and to pay all owners each month as well from the proceeds. When you pool units like this, owners can usually get a better price for the rental management side of things which also saves money.
Rental Pool Operation
Most rental pools that are part of a rental property management program run smoothly provided that you follow standard operating procedures. You must have a board made up of at least 3 members of the owners. The books must be audited each year and a tax report prepared each year for each owner to include in their tax filings.
Rental pools sometimes get into trouble when there is no oversight or very little oversite by the owners. Sometimes one owner will take control and that is usually when the trouble starts. Always make sure that there are at least 3 board members. They should meet with the property manager at least every 2 months and also review the books every quarter. The board should have an annual meeting that elects them and gives everyone to ask any questions that they might have.
An agreement for the rental pool should be set up. There should be a contract between the rental pool and the property manager. There should be an election of at least 3 board members each year. The board members staggered so that there is a combination of both new and experienced members on the board.
Follow some of these simple rules for a rental pool as part of a rental property management program. Generally you will have no serious problems unless the property manager fails to do his or her job. Always maintain a reserve fund for the rental pool as well to make sure you can deal easily with any financial surprises.
We will write more about rental pools in future posts. However if you have comments or want more information, please feel free to leave us some comments.