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8 March 2018

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”
  • Often Misunderstood - Vacation Rental & Condo-Hotel Homeowner Statement Deductions | By Richard EvansOften Misunderstood - Vacation Rental & Condo-Hotel Homeowner Statement Deductions | By Richard Evans
  • Often Misunderstood - Vacation Rental & Condo-Hotel Homeowner Statement Deductions | By Richard EvansOften Misunderstood - Vacation Rental & Condo-Hotel Homeowner Statement Deductions | By Richard Evans

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.

In Vacation Rentals the SPLIT is often 65/35* (benefiting the homeowner) and 50/50* in Condo-Hotels. With that said, this SPLIT can be said to be misleading. This is the result of what I call "above the line deductions" that are at times used by Vacation Rental companies and are used by Condo-Hotels.

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

Mr. Evans has been an executive hotelier for over 25 years. He obtained the following certifications: Hotel Administration, Hotel Accounting Executive, Revenue Management Executive and has completed the Advanced Cornell Revenue Management Certification. He has served hotels, condo-hotels and vacation rental companies as Asset Manager, CFO, General Manager and Revenue Director. As a leader in revenue management he has chaired revenue management seminars at the University level as well for a hospitality related conferences. As a recognized expert in Condo-Hotels and Vacation Rentals he has provided testimony in US courts in related cases. “The Definitive Study of Vacation Rentals” has been authored by Mr. Evans and is available on Amazon.com at http://amzn.to/2lRq5Cp . As a Blogger Evans created and maintains the site http://condohotelanswers.wordpress.com/. He is also a frequent columnist for HospitalityNet.Org and other Hospitality news sites and magazines.


Finance & AccountingVacation RentalsGlobal

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