Rental pools are a legal agreement created when two (or more) parties decide to share something. It can be used for almost anything, including equipment sharing, but it is often used in real estate and condominiums. In the rental pool arrangement, owners of individual condominiums who want to let their properties pool their rental earnings and expenses form a single financial unit and entrust a third-party management firm to manage the lettings, day-to-day management, and maintenance.
A rental pool offers more security to the owners as it provides an income per month and lowers the risk of something undesirable. The rental pool shares profits; however, it also shares in losses, which gives you more assurance and peace of mind. These are calculated using the basis of a pro-rata method based on the number of units you have.
Understanding Rental Pools
Rental pool agreements aim to increase the number of days that can be used for the fair value of the rental. For instance, in the case of properties, the goal of increase the number of days that a property is occupied. From a tax perspective, there are some advantages, i.e., the Internal Revenue Service (IRS) has rules that can limit the number of losses that could be deducted on rental real property. A taxpayer cannot take losses as deductions because the IRS is a passive income source, and any loss incurred from passive income can't be deducted against income earned like earned income. However, when a taxpayer earns other passive sources of income, it is possible to deduct losses.
In the interest of diligence, taxpayers must ensure that all passive income sources are identified as such to allow a deduction to be taken if a non-passive income stream makes an income loss. Deductions are applicable for the tax year following and reflect the year's income or losses. The tax law states that fair rental days are when a home is rented. The law states fair rental days do not refer to the number of days the house is available for rental by a rental arrangement with a pool.
Types of Rental Pool Arrangements
Not as widely recognized is the fact that rental arrangements for the personal property could be set up to create passive income. For instance, those interested could be able to join an arrangement for a rental pool that allows them access to items that may be prohibitive for them, like computers, music equipment, and video gear. Certain types of equipment can also be made available to rental pools.
These agreements may also apply to certain natural resources, for example, water. Groups or individuals living in specific regions may be able to obtain an agreement to access water in reservoirs or wells by signing an agreement for rental pools. In these situations, the priority access rule is typical. The agreements will specify who has first and second priority and the terms and conditions related to the access time.
The Advantages of Joining the Rental Pool
A rental pool can assist you in keeping the costs low for managing the rental properties. This is because management costs are much less for a management company that can manage several rental properties (or the entire condominium building) as a pool and combines the properties into one.
This means that any maintenance, lettings advertisements, financial administration, bank charges, and all other expenses can be handled much more efficiently by one business, and the cost savings are passed to you. The general management cost could be four percent less by joining an investment pool.
Additionally, a rental pool can make owning rental properties much simpler. The company that manages the rental pool will take care of any issues or day-to-day issues. For instance, if your property is vacant and the management company cannot fill it, they will assist with advertising your property and locating new tenants. This setup allows owners to take advantage of their investment without needing to be involved with the problems, which are often the main reason for managing rental properties.
What Is The Cost of The Rental Pool?
In most cases, a management firm is charged about 10% of the rent. Additionally, there are fixed monthly charges borne by the rent pool. These comprise the monthly condo fee for maintenance, unit repairs, painting, and repair of appliances (which you'd need to cover anyway). These are handled through the rental pool and calculated on a pro-rata scale. Since the pool of rentals is a bigger organization than a private owner, this means that the required work can be done in multiple units and help keep costs low. However, you must keep your own insurance in place, as the rental pool does not provide insurance coverage or be a part of the mortgage payment or property taxes.
