Property Management Accounting

Property Management Accounting

Property Management Accounting

Safeguarding your business and maximizing your financial performance starts with good property management accounting. Yet many landlords make the mistake of thinking they can handle all of their accounting in-house. Remember, no matter the size of your rental business, you still need to treat it like a business. Whether you own a portfolio of rental properties, or only a few, improving the financial health of your business is key. To keep your business moving in the right direction and the cash flowing, it takes good property management accounting. With this in mind, we offer some insight on the basics of property management accounting. 

PLEASE NOTE: This article is to provide you with a resource on basic accounting considerations only. Always consult with an experienced accounting professional to receive guidance.

Create Different Property Accounts

First, set up separate accounts for each rental property. This will make tracking your finances easier. Additionally, keeping financial data unique to each property will allow you to identify any issues quickly. For example, if one property is not making money you can dive into accounts and analyze why this is so. As a result, you may find it is something simple like a double entry, or something tough like uncollected rent. Regardless, by keeping your rental property accounting separate, when it comes time to reconcile, prepare profit and loss statements, and file your taxes, life will be much easier.

Choose An Accounting Method

The two methods for tracking income and expenses for a property management business are: cash basis and accrual. While this can be one of the most difficult decisions to make, knowing the difference between the two can help. The basic difference between the two is that one records transactions as soon as money changes hands, and the other records income and expenses as they happen. Below we list the most important differences of each accounting method:

Property Management Accounting Methods

Cash Basis:

  • Income is recorded when cash is received
  • Expenses are recorded when cash is paid out
  • Real-time method
  • Tracking cash flow is easier with this method

Accrual Basis:

  • Income is recorded before money exchanges hands
  • Expenses are recorded despite no cash being paid out
  • Anticipated method
  • Provides a more accurate picture of profitability (long-term)

Property Management Accounting

Rental Property Management Accounting

Managing your own rental properties means you will have to handle all of the financial details. This includes, collecting the rent, managing security deposits, filing your taxes and reporting expenses. Below we list some examples of income and expenses you must report:

Income Examples:

Expense Examples:

Conclusion

Because finances are one of the most important and difficult aspects of property management you may want to consider hiring a property management company to do the work for you. If you are struggling to manage your own properties, let us help! We manage single-family homes, condos, and multi-family properties throughout the San Diego area. Whether you are interested in changing property managers, or simply looking to hire one for the first time, we can help. Call us today at (858) 576-2176 to get started.