Property Management Accounting: The Ultimate Guide to Successful Accounting

Struggling with the accounting side of property management? Property management often involves the essential tedious task of accounting which includes bookkeeping, collecting receipts, and managing rental payments. This can feel like a burdensome chore. However, what if you were told that property management accounting could be automated through software integration, making the process much easier for you? Exciting, right?  

This blog delves into the fundamentals of property management accounting, offering a comprehensive guide on how to manage it effectively. Additionally, it shares integration tools that can help property managers streamline their accounting tasks and reduce their workload. But first comes first:

The “A” in Accounting

As a property manager, juggling multiple properties and tenants can be overwhelming, especially when it comes to keeping your financial records in order. In fact, a survey by the National Association of Residential Property Managers found that 67% of property managers cite bookkeeping and accounting as their biggest challenge. 

But fear not! We've got your back with this ultimate guide. Property management accounting involves keeping track of all the financial aspects related to managing and operating rental properties. This includes tasks like recording rental income, paying bills, tracking expenses, and maintaining financial records to ensure everything is accurate and up-to-date. However, to better manage accounting, here’s a list of key terms every property manager should remember:

[[cta]]

Path to Property Management Accounting

Navigating property management accounting can be complex, but by adhering to the NARPM (National Association of Residential Property Managers) Accounting Standards you can simplify the process. The following steps outline the essentials for setting up an efficient accounting system, from choosing the right software, tracking income and expenses to managing receipts and automating processes:

1. Set Up a System

• Choosing Your Accounting Software: Use property management-specific accounting software. Depending on the complexity of your business, you can choose property management software with features fit for accounting in your company.
• ‍Create Separate Accounts: You can have a checking or saving account for your personal use, but you can only open a business account if you have a legitimate business. Your business account has restrictions, for example there is a monthly limit on your transactions. A key practice in the property management industry is to keep business and personal bank accounts and credit cards separate. This way you are protecting your assets from legal liability, your business account provides credibility and boosts company image, and you have a separate account which simplifies property management accounting. This makes tracking business income and expenses cleaner and easier.

2. Follow the Property Management Accounting Method

Recognizing revenue and expenses is a vital practice for property management accounting. There are only two ways to track money inflow and outflow: 

• Cash accounting: With cash accounting, you record income and expenses when money changes hands. 
• Accrual Accounting: With accrual accounting, you record transactions when they occur, even if payment happens later. Cash accounting is simpler, but accrual provides a more accurate financial picture.

3. Must Have Property Management Cheat Sheet!

The Chart of Accounts is a property management cheat sheet which has a list of the company's accounts in one place. This type of chart typically includes:

• Balance Sheet Accounts: Balance sheets provide a snapshot of your assets, liabilities, and equity at a given point in time. They're like the Instagram of your financial world - a quick glimpse into your financial standing.  Use balance sheets to assess your financial health and make informed decisions about investments and growth.‍
• Income Statement Accounts: Income statements are like the storytellers of your financial journey. They show your revenue, expenses, and net income over a specific period. Use these statements to identify trends, spot areas for improvement, and make data-driven decisions for your property management business. According to a survey by the National Association of Realtors, 28% of Realtors already use AI for customer relationship management. By regularly reviewing income statements, property managers can identify trends such as recurring drops in revenue during certain months, enabling them to implement targeted strategies like seasonal promotions to boost occupancy rates.
  

4. Track Income

• Record Rental Payments: Log all rental income from tenants promptly. Generating monthly rental reports timely should be an essential practice.  ‍
• Ancillary Income: Track additional income sources like late fees, parking fees, and laundry services.

5. Track Expenses

• Ongoing Routine Expenses: Record all operating expenses such as maintenance, repairs, utilities, and property management fees. ‍
• Future Expenditures: Track expenses for major improvements or upgrades separately.

6. Manage Receipts and Invoices

• Organize Receipts: Keep digital or physical copies of all receipts for expenses. However, in today's age and time, digital records are sustainable and safer. When it comes to bookkeeping, it is usually recommended to keep a double-entry instead of a single-entry. A single entry method of bookkeeping is the go-to option for a smaller property management accounting system. When using this method, you only record a transaction once. While the double entry bookkeeping method is more complex. A property management business will record each transaction twice as debits and credits. This method is widely advised by expert property managers.  

7. Reconcile Accounts

• Bank Reconciliation: Regularly reconcile your bank statements with your accounting records to ensure accuracy.
• Credit Card Reconciliation: Do the same for any credit cards used for property expenses.

8. Prepare Monthly Financial Reports

• Key monthly reports: This includes the balance sheet, income statement, cash flow statement, and rent roll. Share relevant reports with property owners. Reports provide vital insights into the business.

9. Hire a Professional

• Hiring a bookkeeper and/or accountant: They can help optimize your books, prepare taxes, and provide expert advice. However, a quality bookkeeping software is worth the long-term investment.

10. Handle Taxes

• Tax Deductions: Track deductible expenses like mortgage interest, property taxes, and depreciation.
• File Returns: Ensure you file accurate tax returns, considering all income and expenses.

11. Automate Processes

• Use Automation Tools: Implement software tools to automate rent collection, invoice processing, and financial reporting to save time and reduce errors.

Now you know the right way to tackle property management accounting! By aligning with these practices, you just got yourself a NARPM (National Association of Residential Property Managers) exclusive guide for property management accounting.

Cautions of Property Management Accounting

In property management accounting, several common mistakes can lead to financial discrepancies, legal issues, and operational inefficiencies. It is crucial to avoid common mistakes and most prevalent errors at all costs:

1. Misclassifying Costs: One of the most significant mistakes is misclassifying expenses, which can lead to inaccurate financial statements. Proper categorization of costs is essential for clear and organized records.
   
2. Relying on Paper Records: Many property managers still use paper invoices and receipts, which increases the risk of loss, misplacement, and errors in record-keeping.  
   ‍
3. Failing to Reconcile Account: Regular reconciliation of accounts is crucial to ensure that internal records match external statements. Neglecting this can lead to discrepancies that affect financial health.
   ‍
4. Neglecting to Run Financial Reports Regularly: Weekly financial reporting is vital for informed decision-making. Many property managers overlook this, which can lead to missed opportunities for improvement. It is advised to publish financial reports every Monday and twice every Friday (Double-entry).  
   ‍
5. Mixing Personal and Business Finances: Mixing personal and business finances complicates accounting and increases the risk of errors during tax season. Keeping your business and personal account separate is a key vital practice.
   ‍
6. Ignoring Tax Obligations: Misreporting rental income and allowable expenses can lead to penalties. Property managers must understand their tax obligations to avoid costly mistakes.

By recognizing and addressing these common mistakes, property managers can improve their accounting practices, enhance financial accuracy, and ultimately contribute to the success of their property management operations.

Looking for the Best Property Management Accounting Software?

Instead of searching for a standalone property management accounting software, opt for an all-in-one integration tool that not only manages your accounting tasks but also automates recurring scheduling, email communications and so much more for property management. Prior to selecting a property management accounting software, ensure that your automation software facilitates seamless financial reporting, it is user friendly and has atop notch customer support. This way you can leverage property management software's for accounting in a smarter way:

Automating Financial Tasks

• Income and Expense Tracking: Automatically record income and expenses using QuickBooks or Xero.  
• Financial Tracking: While primarily an accounting software, QuickBooks integrates well with property management tasks such as invoicing and reporting.
• Asset and Liability Management: You can also update asset and liability records, ensuring that all financial information is up to date.

Enhancing Financial Reporting

• Customized Reports: Generate custom reports in Google Sheets or Excel based on your property management software data, allowing for detailed financial analysis and reporting.

Successfully managing property management accounting involves great attention to detail and organization, from tracking income and expenses to reconciling accounts and handling taxes. By implementing the right strategies and utilizing integration tools, you can simplify these tasks an significantly reduce your workload.

[[cta2]]

The Final Mantra of Property Management Accounting

1. Stay Organized: Keep all financial documents well-organized and easily accessible.
2. Regular Updates: Update your accounting records regularly to avoid backlogs.
3. Automation: Consider automation tools for bookkeeping for property management  

Congratulations! You've made it through our witty guide to property management accounting. Every property management business is different, and it’s always a great idea to seek a professional CPA to understand requirements and details fit for your property management company. However, by choosing the right software and leveraging automation, you can transform property management accounting from a burdensome task into a streamlined, efficient process. So, what are you waiting for?  

Common Property Management Accounting FAQs:  

Q1: What is property management accounting?
Property management accounting involves tracking and managing all financial aspects of rental properties, including rental income, expenses, and financial records.

Q2: How to do property management accounting?
To manage property accounting, set up a system, track income and expenses, manage receipts and invoices, reconcile accounts, prepare financial statements, handle taxes, and consider using automation tools for efficiency.

Q3: What is the best accounting software for property management?
The best accounting software for property management includes options like LetHub, QuickBooks, Xero and Buildium, which offer features tailored for property management needs.

Q4: What is accounting software for property management?
Accounting software for property management is specialized software designed to handle financial tasks such as tracking income, managing expenses, and generating reports.

Q5: Why is bookkeeping for property management important?
Proper bookkeeping for property management is crucial for making informed business decisions, maximizing profits, minimizing expenses, and avoiding legal and financial issues. It provides a clear picture of the financial health of your rental properties

Q6: What is a Chart of Accounts?
A Chart of Accounts (COA) is a structured list of all accounts used in a company’s accounting system. It categorizes financial transactions into various accounts, such as assets, liabilities, equity, revenue, and expenses, to organize and manage financial data efficiently.

Q7: How is your accountant (or you) reporting total rent receipts on your tax return?
Rent receipts collected on behalf of property owners should be reported as a liability, not as revenue. These amounts are recorded as a debit to liability accounts and a credit to cash when received. This approach ensures accurate financial reporting and avoids inflating income. After paying out to the owners, the liability is cleared, affecting the balance sheet but not the income statement.

Q8: What is the NARPM Standard Accounting?
The NARPM (National Association of Residential Property Managers) standard of accounting provides guidelines for managing and reporting financial transactions in property management. You can use the NARPM standards in LetHub. Key aspects include:

1. Separation of Funds: Ensuring that property management funds are kept separate from personal or company funds. ‍
2. Trust Accounts: Maintaining trust accounts for client funds and ensuring accurate accounting and reconciliation of these funds. ‍
3. Accrual Accounting: Using accrual basis accounting to record income and expenses when they are incurred, not when cash is exchanged. ‍
4. Detailed Record-Keeping: Keeping detailed records of all financial transactions, including receipts, invoices, and statements. ‍
5. Regular Reconciliation: Regularly reconciling accounts to ensure accuracy and compliance with financial policies. ‍
6. Transparent Reporting: Providing clear and accurate financial reports to clients, including income statements and balance sheets.

Q9: Is outsourcing your property management accounting wise?
Outsourcing accounting can be an efficient solution for property management companies. It involves hiring a third-party firm to handle financial tasks such as bookkeeping, tax preparation, and financial reporting. This approach can provide expertise; however, property management software's provide a modern integration solution proving to be efficient and cost-saving.  

Q10: How do you calculate Net Operating Income (NOI) for a rental property?
Net Operating Income (NOI) for a rental property can be calculated by subtracting operating expenses from gross operating income. Gross operating income is the total income generated by the property, including rent, parking fees, laundry fees, etc., while operating expenses include property taxes, insurance, maintenance costs, etc.