Hybrid Rental Pool Schemes
A rental pool is a profit-sharing scheme where the actual rental income is distributed between investors and the management company. The annual rental income from all the apartments in the condominium is pooled into the management company’s account and then distributed according to one of two models during the reporting period:
• 30% goes to the management company and 70% to investors, based on their ownership shares. In this case, the profit is shared, not the revenue. This means that all expenses, such as laundry, cleaning, utilities, etc., are deducted first. Investors receive a full breakdown, including all expenses.
• 40% goes to the management company and 60% to investors, based on their ownership shares. Here, the gross revenue is shared, and the management company covers the expenses. Investors do not see these expenses in the calculations.
The distribution is based on the ownership shares of the apartments in the condominium, not on which apartments were rented more frequently or less.
In Phuket, the rental pool income was traditionally distributed under the 30/70 scheme. However, recently, management companies have been transitioning to the 40/60 model. This shift is due to frequent issues with investor trust: when they see detailed expense breakdowns, they may start questioning whether the costs are intentionally inflated. Investigating each expense line can be time-consuming and strain relationships. As a result, some management companies have taken on all expenses by increasing their share.
Hybrid Schemes
Perhaps the most client-focused approach to rental income distribution is a combination of guaranteed income and rental pool. For example, a guaranteed return of 5% annually is provided to investors, with the management company taking a commission from this part of the profit. Any remaining revenue, after expenses, is distributed between the management company and investors through the rental pool system.
Currently, only a few management companies in Phuket use hybrid schemes.
While this makes calculations more complex, it significantly increases investor loyalty: they no longer have to choose between guaranteed returns and rental pool, as they are both protected and assured of maximum profitability.
Which Scheme to Choose if Your Management Company Does Not Use a Hybrid Scheme?
One of the key investment rules states: the higher the risk, the higher the potential returns. Essentially, the difference between the various rental schemes lies in the level of risk investors assume. In the rental pool scheme, investors fully participate in the risks associated with vacancies or loss of income caused by external factors, such as the COVID-19 pandemic. However, these risks are offset by periods of high profitability and strong demand for Phuket properties among tourists.
Periods of high profitability were particularly noticeable in 2022, when rental prices soared, and properties were not left vacant, even during the low season, which typically occurs in the summer on Phuket. Investors in newly developed projects participating in the rental pool were able to achieve returns of up to 9% per year. Those who purchased properties several years ago at lower prices and rented them out at current high rates earned even higher returns, as their profitability was calculated based on the purchase price.
Guaranteed yields are typically chosen at the early stage when the complex is just beginning to rent out units and has yet to establish its reputation in the tourism market. How quickly the condominium reaches high occupancy rates and begins generating significant profits largely depends on the professionalism of the management company. Under normal circumstances, this period may take 2–3 years, although in 2022, many new condominiums achieved substantial profits in their first season.