8 Property Management Accounting Tips in 2020 (+Best Software)

Apartments

8 Property Management Accounting Tips in 2020 (+Best Software)

November 05, 2020

accounting-for-property-managers

Property management companies rely on accurate, prompt, and detailed accounting and financial reporting to track, assess, and properly manage income, cost, reserves, revenue streams, and economic performance of their properties.

Accounting enables them to prepare budgets and make data-backed financial projections. It also allows them to estimate the amount of money they need to remain operational all year round and plan for property improvements.

Through accounting, property management companies can monitor and account for all the cash that gets in and out of the business. They can also get a clear picture of the status of other important business transactions.

For example, if out own a property, and decide to renovate the property, with this bookkeeping you would keep track on your expense for kitchen remodeling, bathroom renovation, night that clients pay etc. This information helps them make wise business decisions.

Now that you know the importance of property management accounting, let’s look at actionable tips and best software for the same.

8 Accounting Tips for Property Managers

As a property manager, your main goal is to make money for yourself and your clients. Knowing how to run a property management business and effectively manage tenants is one thing, but knowing how to continuously rake in profits is a whole different thing. Maintaining a constant accurate accounting is one of the most effective ways to keep your property management business profitable.

Here are 8 actionable bookkeeping tips to help you stay on top of your property management accounting.

1. Open a Verified Trust Bank Account

You should open a verified trust bank account to hold security deposits from your residents. Tenants pay these funds when they’re moving in and get them back when they’re moving out. A verified trust account safeguards these funds from potential takeover in the case of a bankruptcy or problems with your personal or business bank accounts. It’s your responsibility as a property manager to manage and disburse these funds that precisely still belong to your residents. Your leases should specify exactly where these funds are being kept.

2. Open an Operating Bank Account

You should set up an operating bank account for collecting rent and handling recurring business expenses such as owner distributions and supplier payments.  This account should be maintained separately from the verified trust account mentioned above. The biggest benefit of having a separate operating bank account is that you can effortlessly prepare a correct monthly reconciliation report, detailing all account activity, earnings, and expenses. It also makes transaction tracking a cinch, allowing you to locate and identify the exact date, amount, and justification for any financial transaction that happens in that account.

3. Create a Process Guide Detailing Your Property’s Accounting Practices

Lorem ipsum dolor sit amet, consectetur adipiscing elit. Ut elit tellus, luctus nec ullamcorper Take your time to think about your property’s accounting process. If you go through processes in every transaction cycle, you may end up with more questions than answers.

But if you create a process guide spelling out your property’s accounting process, everything will run seamlessly. The exercise of creating a comprehensive process guide could help you unearth cracks in your internal controls and fix them. The process guide provides a roadmap that anyone in your project management team can follow to fill a role temporarily in the event of vacation or sick leave or help a new team member settle in faster.

Ensure your process guide is easy to follow. You can include a few visual aids such as flowcharts, images, and snapshots of your accounting system to ensure everything is clear and understandable. Your process guide must be regularly updated and distributed to team members. As your business makes improvements in certain areas, ensure those improvements are captured in the process guide.

4. Use the Accrual Accounting Method

The accrual method allows you to enter earnings or expenses on the books as they take place. Even if you don’t have funds in your account yet or you’re expecting a bank transfer, you’ll still have to update your books. A perfect example of the accrual method in action is rent payment. Assuming you own a vacation home. Your resident pays four months’ rent amounting to $6,000 upfront, which must be tracked on a monthly basis. The accrual method will allow you to enter only $1,500 every month on the book even if your bank account already has $6,000.

5. Set Up a Charts of Accounts

Creating charts of accounts for your property management business is a crucial step for effectively managing your business. The chart of accounts consists of all the different forms of accounts used in your business, from assets to equity to liability to income to expense. Consider it as the cornerstone of your financial record keeping. Properly setting up your chart of accounts will save you a lot of money by avoiding rework and giving you the capability to clearly monitor your business performance. 

If you own many accounts, try to make your chart of accounts more comprehensive. That way, you’ll get more information about how money flows into and out of your business. The only downside is that your books will be a bit intricate. 

The chart of accounts can be in the form of a text document or a spreadsheet. But if you set it up with accounting software, it’ll take the form of a tab or a separate section.

6. Take an Accounting Certification Course

A certification course in property management accounting is extremely important. It’ll equip you with relevant skills for money management, keeping financial records, preparing financial reports, and effective ways of saving money for your property management business. 

When taking an accounting course, you’ll gain a clear understanding of the laws that regulate business, accounting theory, ethics of accountancy, and basic business administration approaches. You’ll acquire knowledge on how to prepare important property management documents like business proposals, budgets, financial reports, and tax returns.

7. Be Responsible

Responsibility is an important skill that you should have as a property manager. When you’re responsible, you’ll effectively collect and manage tenant rents and security deposits. You’ll set up the right accounts for handling these funds as mentioned earlier. You’ll incorporate dates for lease payments, basic maintenance, and inspections into your calendar so that you don’t miss them. Paying bills, preparing accurate financial reports, and delivering lease renewal contracts to residents on time are other signs of a responsible property manager. 

You must understand and adhere to both local and federal legislation. Your renting and advertising methods must be legal and professional. The property itself must conform to all the local building codes and federal or state regulations. Given that these codes and regulations change all the time, you must stay up-to-date with any amendments. Complying with rules and regulations and knowing your rights and responsibilities as a property manager could keep your liability exposure down.

8. Use Accounting Software

Property management accounting software allows you to monitor your income and expenses. It automates some repetitive accounting processes, which frees up time that you can dedicate to other profitable activities in your business. It enables you to handle tax matters on time, remain organized, and comply with security deposit regulations.

These bookkeeping tools for property managers facilitates more timely payments through features like automated reminders, more implementable late charges, and easy access across all devices. Most property management software also provides tenants with an opportunity to sign up for auto-pay so that their rent is submitted automatically every month.  

The software also automates a variety of tasks like tracking expenses, proper management of time, and contacting clients. It frees up time that you could have otherwise spent in accounting. You can then spend that time adding value to your property and addressing the ever-changing tenants’ needs.

7 Best Property Management Accounting Software in 2021

Some accounting tools for property managers are stand-alone tools, while others are built inside larger software suites and are sold as add-on features of multifamily property management software systems.

Here are 7 best property management accounting software tools in 2021.

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1. Buildium

Review Rating: 4.4 out of 5 stars

Price: The essential plan starts at $50 per month, the growth plan goes for $160 per month, and the premium plan costs $460 per month.

Buildium is a cloud-based platform that allows property managers to be in full control of every part of their properties. It syndicates vacancies, processes lease applications, and performs thorough tenant screenings.  It also handles lease renewals and facilitates seamless online rent payments. The software tool offers complete general ledger accounting, accurate on-demand reports, and automated rent and late fee alerts. It allows submission of maintenance requests, the delegation of those requests to maintenance managers, regular updates on the project’s progress, and completion confirmation all from one platform.

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yardi-breeze

2. Yardi Breeze

Review Rating: 2.3 out of 5 stars

Price: It varies with property type. It starts at $1/unit/month. Residential properties can spend a minimum of $100/month while the minimum monthly expenditure for mixed property portfolios and commercial properties can be $200.

Yardi Breeze is a cloud-based solution designed to help managers of residential and commercial properties successfully manage their properties. It comes with a wide array of tools for marketing, collection of rent and security deposits, accounting, CAM recovery, and maintenance. It also enables property managers to communicate effectively with both current and prospective residents. The platform is user-friendly and easy to navigate thanks to the live chat, easy-to-follow tutorials, and on-screen tours.

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3. FreshBooks

Review Rating: 4.6 out of 5 stars

Price: Lite plan starts at $7.50/month, the plus plan starts at $12.50/month, and the premium plan starts at $25/month.

FreshBooks is a reliable cloud-based accounting software that provides you with all the must-have accounting features in one central location. It gives property managers a variety of features and apps that enable you to prepare invoices with ease, keep track of your income and expenses, view your property’s financial status, and so forth.  With FreshBooks, you can create tailored emails, incorporate your logo, and send customized “thank you” emails. It’s also easy to track time and expenses as well as create comprehensive reports for your property management business.

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4. Property Matrix

Review Rating: 4.4 out of 5 stars

Price: Standard plan goes for $400/250 units/month, the pro plan goes for $475/month, and the enterprise plan costs $1,200/800 units/month

This fully customizable accounting software solution comes with a broad range of premium accounting features for property managers and groups. It offers an app that enables you to access important documents and reports on the go. You don’t require any accounting experience to use this software solution. It provides you with an extensive collection of applications for managing several properties. Other than property accounting, it handles building maintenance, tenant screening, lease tracking, and online rent payment.

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AppFolio-Logo

5. AppFolio

Review Rating: 4.6 out of 5 stars

Price: AppFolio’s pricing varies with property type. Residential is $1.25/unit/month, student housing is $1.25/unit/month, commercial is $1.50/unit/month, and community associations (HOAs) is $0.80/unit/month. The rates are inexpensive, but there is a minimum monthly charge of $250. 

AppFolio is a one-stop property management software solution built for property managers and landlords. Due to the minimum monthly fee ($250), this software makes money sense if you have a vast portfolio of properties. It supports online leasing, accounting, timely reporting, maintenance, and online rent payment.

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hemlane-logo

6. Hemlane

Review Rating: 5 out of 5 stars

Price: The basic plan goes for $2 per unit + $28 base. This means if you have 2 units, you’ll part with $32 each month ($2 x 2 units + $28 base). The smart plan costs $30 per unit + $28 base, meaning for 2 units, you’ll pay $88 per month ($30 x 2 units + $28 base).

Hemlane enables property managers to market listings on more than 40 sites, keep track of leads, schedule automatic late fees, keep documents safe, manage maintenance, and enhance your communication with tenants. It also facilitates online leasing and rent payments. It also tracks income and expenses and provides on-demand reporting.

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MRI-Living-logo

7. MRI Living

Review Rating: 3.9 out of 5 stars

Price: N/A

MRI helps property managers stay in full control of every aspect of your property management business by automating difficult lease calculations, from lease clauses to estimated payments to recoveries. Its centralized data storage gives you continuous access to the newest tenant information. MRI also tracks your portfolio performance and offers you valuable insights to help you make informed strategic decisions.

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Next Steps for Property Managers

Effective property management accounting gives you a true picture of the performance of each of your properties. It lets you see the amount of profit that each property is generating. It also lets you track and accurately record your income and expenses.

By implementing the bookkeeping tips and utilizing one of the property management accounting software discussed in this guide, you’ll effectively manage your property’s accounts and position it for success.

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