Often Misunderstood - Vacation Rental & Condo-Hotel Homeowner Statement Deductions
By Richard B. Evans, President of Revenue Report Card LLC & Author of “the Definitive Study of Vacation Rentals”
In both Vacation Rentals and Condo-Hotels the "homeowner" could be thought of as a "partner" of the Rental Program Operator. If and when economic benefit justifies it, "homeowners" place their "homes" in rental programs in order to receive a distribution share of Gross Room Revenues.
These deductions are almost always misunderstood and that is the premise of this article.
Before I go on, however, allow me to present a "Homeowners Statement" – Illustrations 1 & 2. This is a statement "homeowners" in these programs receive either monthly or quarterly and that show the calculation of distributions afforded them from direct room nights rented in their "homes".
I provide what might be typically afforded to "homeowners" in a Vacation Rental and Condo-Hotel program in a side by side presentation. The presentation is meant to provide information on the metrics of each and not necessarily the production. Production (ADR & Occupancy) will, of course, vary.
"Above the line" deductions on a Homeowner Statement are used to reduce the homeowners' distribution base.These line items DO NOT represent actual income or create cost reduction on the Profit and Loss statement other than to decrease distributions to homeowners. They are ordinarily seen in Condo-Hotel programs to camouflage a stated 50.0% rate, when the actual rate to "homeowners" after these deductions is often 40.0% to 46.0%.
In the above illustration you can see that the Vacation Rental and Condo Hotel applies an aggregate of 8% and 28.0% (of Gross Room Revenues), in "above the line" deductions, respectively.
Often, it is thought that "above the line deductions" offset the Vacation Renal or Condo Hotel Profit & Loss statement line items of the same description; but they do not.
Since "above the line" deductions are than arbitrary in their description (i.e. – Travel Agent Commissions, Marketing & Advertising, Credit Card Commissions, etc.) the only thing that is important is what the aggregate amount of those deductions comes to as a percentage of Gross Room Revenues. To reiterate, "Above the line deductions" are a means to an end; to reduce the base on which the SPLIT is applied.
"Below the line deductions" on the other hand, are real deductions that come out of "homeowners" pocket. These deductions can be used to pay Reserves, Repairs, Maintenance, Fees, Dues and the like. They do have a Profit & Loss effect as either revenues or an offset to line item expenses.
It's important to know the distinction between "above" and "below" the line deductions. They decrease "homeowner" and increase rental program economic benefit.
With that said, here iare comparative views of 65/35, 50/50 and 100/0 Splits.
- The distribution SPLIT may vary from Vacation Rental to Condo Hotel programs.
Richard B Evans
President of Revenue Report Card LLC
Phone: (954) 290 - 3567