Managing properties is about more than maintaining buildings and dealing with tenants. There are many more crucial factors. Understanding property management bookkeeping can help you to manage your properties better. You can understand property finances and make decisions.
Insightful financial management is not just about numbers. It's about the potential it holds for your properties. It can lead to reduced operational costs, tax savings, increased rental income, and a higher return on investment.
If you are a beginner in property management, I will share some basic ideas that can fuel your optimism and help you to take charge of the property finances.
Why Property Management Bookkeeping is Essential
Financial Transparency: It provides a clear understanding of your income and expenses. It helps you to make informed decisions.
Compliance: Property management bookkeeping allows you to comply with tax regulations and other legal requirements.
Cash Flow Management: It helps you keep an eye on your cash flow. It ensures that you have enough funds to cover expenses and invest in property improvements.
Property Performance Tracking: Bookkeeping allows you to track the financial performance of each property. It allows you to identify profitable assets and those that need attention.
Tenant Management: It is crucial to keep accurate records of rent payments, security deposits, and other tenant-related transactions. It helps maintain good tenant relationships and avoid disputes.
Basics for Property Management Bookkeeper
Set Individual Bank Accounts
Try to maintain separate bank accounts for each property or property portfolio. You should not use any personal bank account for professional property management. You will need to make different transactions, such as security deposits, rental payments, late fee charges, etc. So, when you make all the transactions using a professional bank account, it will be easy to track all the income and expenses.
Chart of Accounts:
Make a chart of accounts specific to property management. It will help you organize the financial statements. The chart of accounts needs to cover all types of assets, liabilities, Equity, Income, and expenses. This includes categories like rental income, property expenses (utilities, maintenance, repairs), property taxes, insurance, and other relevant categories.
Record Rental Information:
Organize tenant information to track each property's transactions and avoid mishaps. Document all rental income received from tenants. This includes rent payments, security deposits, and any other fees associated with renting the property.
Choose an Accounting Method
Choose the best accounting procedure before starting a commercial property’s accounting. Two methods are mostly used in property management bookkeeping: the accrual method and the cash method. The accrual method shows the company's earnings and tracks the due rent. So the property manager can easily trace the late payments. On the other hand, in the cash method, every transaction is recorded according to cash on hand. That means if you make any payment or expense, you can keep it on record. However, this method is not preferable for property management.
Record Expenses:
Maintaining a rental property may involve many management expenses. It includes maintenance and repairs, property taxes, insurance premiums, utilities, advertising costs for
finding tenants, property management fees (if applicable), and other relevant expenses. So, keep aside a fund for unexpected expenses.
Bank Reconciliation:
Monthly bank reconciliation will help maintain bookkeeping accuracy. This can identify any errors, such as missing entries, duplicate entries, or banking errors. The process may look tedious, but it will decrease the chance of overpayments or payments due.
Calculate Depreciation:
Depreciation is a way to determine the value of an asset over time. If you purchase tiles for your rental house, they have a shelf life, and their value will decrease over time. Depreciation is important for tax purposes and accurately reflects the property's value on your financial statements. Your up-to-date financial statements will help you with tax deductions.
Budgeting:
Develop and maintain budgets for each property to forecast income and expenses. This can help property managers make informed decisions and ensure financial stability. You can keep some funds aside, which will lessen your burden in future unexpected circumstances.
Utilize Software:
Invest in specialized property management accounting software or general accounting software like QuickBooks tailored for property management needs. These tools can simplify the processes and provide valuable financial insights. Any simple mistakes can cost you a major loss. But, utilizing the property management software reduces the chance of mistakes. You can track the tenant’s payment as it keeps everything organized. Automating everything using bookkeeping software will help cut overhead costs.
Stay Compliant With Laws & Regulations:
You need to comply with local, state, and federal regulations regarding property management and accounting practices. To avoid any inconvenience, you must be familiar with tax regulations, landlord-tenant laws, and other relevant regulations.
FAQ:
Is it necessary for a property manager to understand bookkeeping?
Yes. The property manager must be knowledgeable about bookkeeping. It is essential for accurate financial statements and good financial maintenance.
Do I need to purchase accounting software for property management?
Yes. If you want to stay organized with financial documents and want to get an accurate report, you need to utilize accounting software. It will make things easier for you.
Conclusion
Your rental property will be profitable if you follow the property management bookkeeping basics and make best practices. You need to back up all the documents to stay organized or outsource a bookkeeper if you are a property owner or manager. You can contact Bookkeeping Done Wright to get an excellent property management service. We have an expert team to handle your property delicately.
Comments