Some investors should be diving head first into these, just not literally!
Rental pools have been around for a while but surprisingly very few investors know about them. The concept is simple; a group of investors buy several properties, usually a set of row units or condo units in one building, and they “pool” everything. A property manager is typically hired to look after all the units. The manager rents them out, keeps them maintained and takes the emergency calls. All the rents are collected and disbursed equally amongst the owners. Whether your specific property is vacant or rented, you get the same agreed upon percentage every month.
This is usually where I get the blank looks, and a life preserver must be thrown out. Yes, the money is “pooled” too. The benefits of rental pools are safety in numbers and economy of scale. If the market tanks and vacancy rates soar to 10% you will still get 90% of what you would have got on your own. Because those other units fully rented are paying out all the owners. See, no sharks in this pool!
Economy of scale is your friend. The more units in the pool the less it should cost per month for a manager and all the other expenses like pumpers, handymen, snow removal, etc. You save on the expenses!
Are rental pools for you? If you really want hands off control and would likely never manage your rental yourself – this is for you. Rental pools do not work well if owners start opting out over the years. In addition, rental pool investors like the idea of always covering most of their expenses, and worst case scenario “losing” a small amount of money for a month or two.
I have been a real estate investor for 6 years with very low vacancies but I did have a property left vacant for 4 months. That was $6000 in lost income. That wouldn’t have been the case if I had were in a pool. The profits AND the losses are shared equally. Meaning there are no big gains, nor big losses.
Suffice to say, the legal contract amongst the owners is important. Coincidentally most rental pools I know of include lawyers. Maybe when they are hired they see the benefits and opt in, maybe they get recruited. Which brings up another great benefit of this large partnership – the shared expertise of different people from all backgrounds and trades. I think a dream rental pool includes a realtor, lawyer, accountant, contractor, and a mortgage broker to name a few.
There are rental pools out there, but nobody is stopping you from creating one either. Contact Dave@JohnKingTeam.com if you want to take the plunge into investing in real estate. I promise no pushing by the pool but a lifeguard always on duty.
This post was written by Dave