Property Management Accounting: The Basics
Your rental property is an investment. You will put your time, energy and money into it – so you will want to see a return on that investment. Combined with active and informed property management, accurate accounting gets you what matters most: your bottom line.
Use our Property Management Accounting Tips to track your profits, organize your books and better manage the finances of your rental revenue!
Create Separate Bank Accounts
In a new age of contactless transactions and long-distance bill payments, if you weren’t already using online payments to collect application fees and rent payments – now is the time! A benefit of e-payments has always been that funds get deposited directly into your account. However, in operating a business, you will need to treat it as one. This means opening separate bank accounts. In fact, you should open at least two to begin with: one for the property you’re managing, and one for tenant security deposits (for reasons we’ll discuss later on in this series).
Every financial transaction for the property will need to be made with its associated account. All income (fees, rent) is deposited and expenses (maintenance / repair, make ready, et al) are paid from the same place, making it easier to track – which the IRS requires. You won’t be relying solely on your bank statements to track the debits and credits to this account – this is just the tip of the iceberg! Keeping the funds separate is the first, and simplest, step to taking your bookkeeping to the next level.
Can I Spend the Money in My Business Account?
Yes! Rent is income, after all! You will need to just “pay” yourself by moving funds from your business account to your personal one. Remember, you will be logging these transactions as part of your accounting process and that’s why you should never spend miscellaneously from your business account, but by all means collect your revenue.
Tip: Keep a “reserve” of funds in your business account for each property. This is a set amount of money that you have set aside for emergency use, deposited into the business account. A reserve acts as a buffer to your personal funds in case you have already paid yourself when a sudden repair is needed on your investment property. Most Property Management Companies require this reserve as well – it’s definitely in your best interest to have!
Should I Create a Bank Account for Every Property I Own?
This is up to you. The better your bookkeeping, the less likely it is that creating multiple bank accounts provides more of a benefit than one well-managed bank account. With accurate accounting, built-in redundancy, and thorough record-keeping, you can operate your entire portfolio out of one bank account. (Remembering to keep security deposits in a second, separate, bank account.)
Tip: Property Management Companies like Frontline Property Management have a dedicated Accounting Department that houses years of experience with detailed accounting. If thinking about general ledgers, double-entry bookkeeping and cash vs accrual accounting is already making your head spin – don’t worry! It’s what we’re here to do!