Full-time property management isn't just paying rent and fixing basic household items.
It offers the possibility to be rewarding and lucrative, providing opportunities for people to profit from their real estate investments or offering qualified management services to property owners. But many duties come with it, and bookkeeping is an important one that should be addressed.
Understanding the significance of accounting real estate is crucial for maintaining financial accuracy and effectively managing properties, regardless of your experience level as a property manager or interest in the profession.
By methodically logging and organizing financial transactions, bookkeeping serves as the foundation of efficient property management. Property managers can make knowledgeable decisions and create reasonable budgets by using proper bookkeeping procedures to get a clear and accurate understanding of a property's financial health.
The way to lay a strong foundation for financial success for newcomers to the world of property management is to appreciate the significance of accounting for real estate.
This beginner's guide to bookkeeping for property management is to simplify the procedure and emphasize its importance.
So, let's first begin with what is bookkeeping for property management.
What is bookkeeping for property management?
Bookkeeping in property management refers to the recording, organizing, and managing of financial transactions and records of property management activities. It entails tracking and recording various financial factors, including revenue from rentals, costs from expenses, upkeep costs, utility bills, property taxes, and other financial transactions associated with property ownership.
It emphasizes keeping up-to-date, accurate financial records to guarantee transparency, accuracy, and accountability. Additionally, it gives property managers a clear understanding of the state of their properties' finances, enabling them to make wise decisions and practice efficient financial management.
Elements of accounting for property management
Accounting for property management entails several vital elements that are required for keeping accurate financial records and managing properties effectively. These elements are as follows:
Accounts Payable: Accounts payable refers to the cash your real estate company owes to vendors.
Accounts Receivable: This is the cash owed to you for your services. Any outstanding invoices, fees, or rent balances are placed here.
General Ledger: The renter's income, expense, liability, and equity accounts are all in the general ledger. It offers a thorough analysis of the property's performance and financial position.
Assets: Anything you own that is valuable qualifies as an asset. This entails calculating and recording depreciation costs and real estate's purchase, sale, and improvement.
Budgeting and Forecasting: In property management accounting, budgets and forecasts are created to plan for future income and expenses. It entails analyzing historical financial data, forecasting future revenues and costs, and establishing financial objectives for the property.
Bank reconciliation: It entails comparing the property's financial records with the bank statement to ensure that all transactions are accurately recorded, spot inconsistencies, and preserve the integrity of financial data. As this involves digital data alongside figures committed to physical documents, it can be complex, or at least that used to be the case. Thankfully it’s now possible to simplify bank statement conversion with DocuClipper, making bank reconciliation less of a time sink, and also reducing the likelihood of errors arising.
Credit: Any transaction on the right side of an asset account. These transactions reduce the asset account's balance.
Debit: Any transaction appearing on an asset account's left side. These transactions increase an asset account.
Expenses: In property management bookkeeping, expenses include maintenance and repairs, property taxes, insurance premiums, utilities, and administrative costs.
Net profit and loss: Net profit and loss show how much money you've made or lost as a business owner.
Why is accounting important for property management companies?
Several factors make property management bookkeeping crucial.
First, it guarantees financial accuracy by keeping accurate and reliable income, expense, and transaction records. This precision is critical for making informed decisions and determining the profitability of properties.
Second, real estate accounting helps in sound decision-making by providing pertinent information and insights. Property managers can evaluate financial performance, pinpoint areas for development, and make tactical choices about budget allocation, rent adjustments, and cost-cutting measures.
In addition, by examining previous financial information and predicting future revenue and expenses, property management bookkeeping aids in budgeting and planning. Property managers can use it to create realistic budgets, allocate resources wisely, and maintain financial stability.
For example, if you're having issues tracking your property management fleet and you’ve managed your budget correctly, you can afford to optimize your fleet with a field service management solution.
In addition, property management accounting encourages transparency and accountability by giving stakeholders—including investors, property owners, and investors—accurate financial reports. It fosters trust and gives a transparent picture of the property's financial situation.
Finally, property management accountants contribute to risk management by foreseeing potential problems and implementing the necessary solutions. Accurate financial reporting fosters confidence and makes financing more accessible, so it's essential for keeping good relations with lenders and investors.
Bookkeeping for property management: best practices
Put together a chart of accounts
A chart of accounts is a detailed list of a property owner's assets, liabilities, equity, revenues, and expenses. You can keep track of your dealings and easily access all the necessary accounting data with the help of a good chart.
For each client, the chart of accounts should be the same. It may be advantageous to create a formal set of rules outlining the objectives of each account.
Identify the best accounting strategy
There are only two ways to track money flowing in and out of business, whether you manage personal or investment properties.
These are accrual accounting and cash basis.
The primary difference between them both is when revenue and expenses are recognized. While accrual accounting deals with anticipated revenue and expenses, cash accounting concentrates on immediate recognition.
The best way to decide on your accounting method for property management is to think about how you want to view your records. Many people prefer cash accounting because it is simple — no changes are made unless cash enters or exits an account. However, one advantage of accrual accounting is that it simplifies setting aside cash for upcoming costs, enabling you to plan your spending accordingly.
Set up a journal
Your journal is the brain of your accounting system. Here, you can keep tabs on transactions as they happen. It's a good idea to organize your journal by month. If you're using Excel to manage your bookkeeping, you might have a separate sheet for each journal month.
Remember that this is for single-entry bookkeeping only. Single-entry accounting is best suited for small businesses.
If multiple properties bring in money, you're probably better off with a double-entry bookkeeping system. It takes more work to maintain, but it's better for organizing many different transactions and ledgers.
Keep your cash flow positive
A crucial component of property management bookkeeping procedures is maintaining cash flow. It is the in and out of money in a property or property management business and is critical to the operation's financial health and success.
It is essential to record and monitor rent payments from tenants accurately. Property managers must record each rental payment's amount, date, and source. Due diligence in tracking allows property managers to spot missed or late payments quickly and take the necessary steps to ensure a steady cash flow.
Additionally, by keeping current records of tenants who are delinquent on their rent payments, property managers can take preventative action to address the problem. Additionally, all costs associated with maintaining and operating a property, such as maintenance, repairs, taxes, insurance premiums, and utilities, must be documented and categorized.
Remember to keep a rainy-day fund to pay for any last-minute or unforeseen expenses; this will help you be ready for any obstacle that comes your way.
Separate escrow accounts
There may be more conditions and even limitations for your business bank account. Your business checking account, for instance, might have a check on the number of transactions you can make each month. Even a higher maintenance fee could be assessed by the bank.
You may also consider opening a separate account at the same bank where your personal account is.
But why should your property management company have its own account?
Firstly, you are shielding your assets from potential legal action. Nobody wants to think about their company failing, but it does happen. You do not want to risk leaving behind your private assets as well.
Second, having a business account gives the company credibility and improves its reputation. Naturally, you might even want to apply for a business credit card.
Finally, separate personal and property management accounts simplify accounting for rental properties. A designated account serves as the venue for all transactions, business expenses, rental cash flow, and online payments. Through separate bank statements, you can easily keep track of transactions.
Reconcile every month
Bank reconciliations are essential to property management bookkeeping that should not be overlooked or skipped. Sadly, there is occasionally a tendency to overlook or disregard this crucial task. However, this might cause serious problems later.
The goal of bank statement reconciliation is to verify that the financial records of the property manager and the bank statement are in agreement. This procedure aids in locating any discrepancies, including duplicate entries, missing data, incorrect data, and even mistakes made by the bank.
Property managers can prevent future financial difficulties that would necessitate hours of painstaking investigation by promptly addressing these issues.
Bank reconciliations can be disastrous if they are rushed or ignored. It could lead to inaccurate financial records and challenging tracking and transaction reconciliation. Due to this, it may become difficult to maintain financial control and spot mistakes or discrepancies on time.
Virtual Bookkeepers for the perfect property management accounting
Accounting and bookkeeping for property management are not for the weak of the heart. Property managers are typically expected to monitor an owner's real estate income, assets, and expenses and implement accounting procedures that support sound business growth and profitability.
But with so many tasks on their plate, it becomes pretty challenging to manage your books as well.
In this situation, the most suitable option is to hire virtual bookkeepers to handle your property management bookkeeping.
Businesses increasingly prefer using virtual bookkeepers because they provide several significant advantages.
Since they frequently operate from home, virtual bookkeepers don't require additional workspace, office supplies, or employee benefits. These financial savings can help startups and small businesses with tight budgets.
Flexibility is another significant advantage of using virtual bookkeepers. Depending on your demands, they may work part- or full-time. They can accommodate shifting business requirements and offer assistance during busy times or financial audits.
They know industry standards, legal requirements, and the most recent bookkeeping programs. Businesses can benefit from accurate and effective financial management by utilizing their experience, which lowers the risk of errors and compliance problems.
They are also adept at using cloud-based accounting systems, which enable mobile access to financial records, real-time collaboration, and data security. Virtual bookkeepers can automate and streamline bookkeeping procedures to increase productivity.
Wishup: For ultimate property management bookkeeping
Wishup is a platform that matches entrepreneurs, startups, and small businesses with the most suited pre-screened and vetted virtual assistants to help with data entry, bookkeeping, customer service, and other administrative tasks.
Wishup's dedicated bookkeeping team, with extensive knowledge and experience, can meet all your bookkeeping needs. Our bookkeeping assistants are eager to use their years of bookkeeping experience to help you with all the tasks required. They have managed books for a variety of businesses.
Here are among the top benefits of selecting Wishup's virtual bookkeeping services:
- Only the top 1% of applicants
Wishup hires virtual assistants from the top 1% of applicants worldwide. When choosing a qualified candidate, you don't need to consider things like taxes, relocation, or other considerations.
- Graduates with exceptional expertise
Wishup virtual assistants are trained before working with clients and have over 200 specialties. Moreover, they are well-versed in the most recent no-code productivity tools.
- Thoroughly vetted and trained on-site
Wishup's virtual assistants have all been subjected to extensive background checks and other verifications. Consequently, you won't have to spend time on the time-consuming interview processes since they have already been pre-interviewed and vetted.
- No-questions-asked replacement
Let's say that your primary assistant is unreliable or unavailable due to an urgent situation. Wishup offers the fantastic benefit of replacing your virtual assistant right away and without any questions asked in that situation.
- One-day onboarding
Since they have already been pre-interviewed and vetted, you won't have to put your time and effort into the tedious onboarding procedures. You can quickly hire a virtual assistant.
- Zero geographical limits
Geographical limitations are no longer a problem! Depending on your location and business requirements, you can employ a VA based in the US or abroad through Wishup.
- 7-day free trial
To see if virtual assistance is suitable for your company, you can try it out for free with Wishup virtual assistants. You have seven days to assess your virtual assistant's adherence to your company's culture and values. If you are dissatisfied with the virtual assistant, you also can request a refund.
- Guaranteed data security
To protect the confidentiality of their client's data, all Wishup VAs sign a Non-Disclosure Agreement prior to being assigned to clients.
- Personalized support
Wishup designates a dedicated account manager to support you during the hiring process, ensuring you have ongoing support for query resolution or process management.
What tasks can you delegate to a Wishup bookkeeper?
- Leveraging QuickBooks
- Keeping accurate records for accounting
- Setting automatic reminders
- Setting auto payments
- Doing data entry
- Keeping accurate records of all transactions
- Putting them in the proper ledgers after sorting
- Making accurate record summaries
- Maintaining adequate records of financial transactions
- Managing accounts payable and receivable
- Creating purchase orders
- Taking care of vendors
- Managing billing
- Tracking expenses
- Paying invoices
- Creating invoices
- Tracking customer records
- Surveying collections
- AR Ageing
- Credit/Debit notes
- Setting provisions
- Verifying vendor payments
- Rebalancing bank
- Reconciling credit card accounts
- Preparing financial statements
- Income reports
- Financial statements
- Cash flow forecasts
Property management entails a wide range of tasks. If you have had any experience in property management, you have probably encountered many stressful situations. But keeping track of your properties doesn't have to be complicated.
Many landlords outsource bookkeeping to do this work for them.
Virtual bookkeeping assistants at Wishup will end all your property management bookkeeping hassles. Consult with us via a free consultation with our expert team or simply get in touch via email – [email protected].
FAQs related to Bookkeeping for Property Management
What makes a good management accountant?
A strong understanding of accounting principles, financial analysis, budgeting, forecasting, and reporting are among the solid financial skills of a good management accountant. They can offer management valuable financial insights and support because of their attention to detail, analytical abilities, and communication skills.
What are the 3 types of property?
Commercial, residential, and industrial properties are the three primary categories. Other types of properties, including agricultural properties, undeveloped land, and mixed-use properties, contain elements of the three different commercial, residential, and industrial sectors.
What are the 2 duties of a management accountant?
A management accountant's two most frequent tasks are budgeting and financial analysis. They perform financial data analysis to reveal a company's performance and offer suggestions for development. Additionally, they are essential in creating budgets, ensuring efficient resource allocation, and assessing financial performance in relation to goals.