Condominium Rental

A condominium rental situation is very complex but can be a win-win situation for both owners of units as well as the rental association.  A board of directors which consists of owners of the units make all final decisions given to them from the general manager of a condominium rental property.  This board of directors is responsible for all tasks including hiring the property general manager to deciding what how the financial income is broken down between owner proceeds and rental agency operations expenses.  The property must operate in a tight budget allowing the continued revenue growth needed to keep a property current with today’s lodging market.

In this article, there are the many points of operations which need to be implemented at any condominium project to ensure its competitive edge in a ever growing lodging market.

The function of the management company of a condominium property is to perform all tasks from front desk operations, advertising, housekeeping, maintenance, and general accounting functions.  The cost of operations is covered by two separate funds.

 One of these funds is collected as a percentage of gross room rental.  This fund is used to cover the “non-fixed” charges of operations.  The term “non-fixed” is used as the money collected is used to cover the costs which are for the most part directly proportional to the amount the units are used.  Therefore, if the unit is rented more, the percentage collected is more and this amount is used to cover the increased costs associated with the increased rentals.  The percentage collected by properties is dependent on the overhead costs of a property.  Commonly properties are charging between 36% to 40% of gross.  There is one time where a percentage of room gross is not possible to be collected.  This is when an owner uses their uses their unit.  Since it is not necessary to charge the owner the regular room rate, and in fact is just poor business as the moneys collected are taxable and paid right back to the owner less the tax collected.  It is however for the management organization to collect moneys to cover their costs of rental and maintenance a small charge is assessed to the owner when staying.  The assessment can be done in two different ways.  The most common method is to have a nightly assessment, and the second is to have a one-time assessment per owner occupancy.  The only time that the one-time assessment is used is when the owner usage does not require nightly cleaning.

Items covered out of room gross, and owner stay assessments include:

• Rental Agency
• Cleaning Charges
• Cleaning Supplies
• Laundry

The above items cover most of the charges used in operating the property.  The largest amount is the Rental Agency charge.  This charge covers everything from the employee payroll, office equipment, telephone costs, and Advertising.

The second fund is a quarterly assessment.  This assessment is used to cover the “fixed” costs of operations.  These operations include items such as insurance’s, utilities, and general repairs.  These quarterly assessments are adjusted whenever it is deemed necessary.  One of the charges which is covered in the quarterly billings is the Utilities.  It is up to the management company to determine if the units are metered separately or if they are singularly metered and the utility amount is divided between the units.  If the units are all symmetric single metering is commonly used.  However different type units can still be singularly metered but the charges are typically proportional to the number of bedrooms of each unit.  Therefore, a two bedroom would only pay two-thirds the cost of a three bedroom unit. Quarterly billing is different for all properties.  It is common to see billing amounts between $120.00 per month to $180.00 per month. 

One other assessment which is charged to an owner twice annually is an inventory replacement charge.  Each unit is responsible to have an exact inventory of items including kitchen goods down to the number of specified hangers in the closets.  Only a few items contained in a unit are owned by the management company.  All other items are owned by the owner.  Management items may include items such as telephone, smoke detectors, and pay-per-view TV controllers.  Owners are not able to purchase items for their units.  All items in a unit are purchased by the management group.   This insures the same quality items in all units.  Another reason that the management company is in control of purchasing unit inventory is that they make sure at all items are ADA compliant and that they can maintain an inventory of items for immediate replacement of broken / damaged items.

Below are some common quarterly billings items:

Quarterly Billing

• Unit Utilities
  • Cable
  • Sewer
  • Water
  • Electric
  • Gas
• Common areas
  • Insurance
  • Utilities
• Maintenance
  • Ground Keeping’s
  • Pool Maintenance
  • Garbage Collection
  • Snow Plowing
  • Escrow account for future scheduled maintenance
  • Shingling
  • Painting
  • Carpeting
• Inventory Replacement

All units must pay the quarterly billing items.  Units which are delinquent on their assessments and not eligible to vote on any matters up for change during owner meetings. 

 If a unit wishes not to use the predominant management company, it is up to the board of directors to impose special assessments to the said owner to cover the usual costs covered by the rental fees.  These costs include the cleaning of the common areas, phone charges, and general employee charges for performing tasks from key delivery, phone transferring, and more.

An owner receives their monthly proceeds check which is based on the percentage of gross of their units’ rentals.  All checks which are issued to an owner are based on guest departures.  The reason for this is that until a guest departs it is not certain what their room revenue value is.  There may be rate adjustments given for long stays or for problems associated with the guests stay.   Until the guest departs, you are not certain what the final room rate may be.  The owner will only receive a percentage of room gross.  If the guest occupying an owner’s unit uses items such as phone charges, restaurant charges, miscellaneous purchases, etc.  a percentage of these charges do not affect the owners monthly take. 

If an owner has only owner stays in a given month their monthly check will be negative.  The reason for this is that they only have had charges associated to their stay in their unit.  If this occurs, the owner is responsible to pay these charges.

To keep all units renting equally a method of unit rental called rotation is used.  Rotation makes sure that all common type units are rented to as close as possible in room nights.  It is the responsibility of the Property Management Software to assist the front desk in making the proper unit choice when reserving the unit.  Below is a sample of what a typical rotation report gives the property to deal with rotation.

But first a few basic facts about rotation.  A regular guest is always counted a rotation night for every night occupied.  An owner is only counted if the property fills up, or reaches a pre-defined percentage of full for a given day.  That is if an owner stays on July 4 for 3 nights, and 2 of the nights the property is full the owner gets counted for two rotation nights and one out of rotation.  All rotation figures are computed based on guest departures for past and year start rotation.

There are a couple of reports which properties use to keep track of their rotation.  The first report is the one which should be reviewed at a property on a regular basis.  This report is the Rotation Status report.  On the top of this report there are several headings.

It is the job of the property management software to define how each unit is broken down to reach the numbers on the Rotation Status Report.  This is by using the Unit Rotation Report.  This itemizes all guest departures on every month and breaks down the number of nights is rotation and out of rotation.  This is very useful in report verification as well as owner understanding of the report.  This report is commonly reprinted monthly for each owner and is sent along with their proceeds check.

The items listed above may vary from property to property but are for the most part accurate for most property management groups.