One of the secrets to becoming a successful property manager is being honest with your abilities. When you are honest, you can decide if you can do critical property management roles such as bookkeeping or delegate them to a professional.

Property management is one of the easiest tasks because it requires basic skills, such as people skills, marketing, and accounting. As a property owner, you must master or at least be familiar with basic accounting (bookkeeping) skills.

Mastering bookkeeping skills will give you an upper hand in financial management because no one else can manage your property better than you. In addition, the pillar of financial success in the property management world is built on strong bookkeeping skills.

Since one of the main responsibilities of a property manager is to manage income, expenses, and assets, you have to frequently deal with bookkeeping for efficient management of your property. In this blog, we will show you how to do property management bookkeeping like a pro.

So, let’s dive into the details!

What is Property Management?

Property management is the process of overseeing and monitoring real estate operations. It involves the administration of the following real estate properties:

• Residential real estate property
• Commercial real estate property
• Industrial real estate property

Typically, property management is done on behalf of a property owner by professional property managers. A property manager is responsible for the following:

• Collecting rent
• Renting the property
• Cleaning and maintaining the property
• General repairs and upkeep

What is Property Management Bookkeeping?

Property management bookkeeping is the process of recording and managing financial transactions related to the management of real estate properties. This type of bookkeeping is associated with the recording and tracking of financial transactions such as:

• Rental revenue
• Upkeep costs
• Property taxes
• Utility bills
• Costs from expenses
• Other financial expenses

Property management bookkeeping should be accurate and timely to foster accountability, accuracy, and transparency. In addition, it allows you, as a property manager, to understand the financial status of your property. This will allow you to practice effective financial management and make sound decisions regarding the progress of your property.

Common Terms in Bookkeeping Property Management

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To do property management accurately, you need to understand the basic and common terms you will encounter in your daily activities. These terms are:

• Bookkeeping: it is an integral part of the accounting process that involves recording a company’s transactions, generating financial statements, processing payroll, and other essential functions. Accountants use bookkeeping data to perform audits, and file returns, among other essential roles. Bookkeeping data is essential to any business since it allows accountants to generate beneficial data that gives business owners insights about the performance of their investments.
• Accounting Period: This is a range of time when bookkeepers accumulate transactions to form financial statements. Every financial report generated by a bookkeeper must be done within a given accounting period. Usually, an account period is considered a month. However, this period can change depending on a company’s size and cash flow.
• Accounts receivable: This is the amount of money you receive from customers for your services. It includes rent balances, outstanding invoices, or any other fees that are yet to be paid from your real estate customers. Accounts receivable are recorded as an asset on your balance sheet.
• Accounts payable: This is the amount of money your real estate company owes vendors and service providers. On the balance sheet, accounts payable are presented as a current liability.
• Assets: these are the things that are owned and controlled by your real estate company. In particular, these are the properties registered under your name.
• Bank reconciliation: It is the comparison of bank statements with the records on the company’s balance sheet. The purpose of bank reconciliation is to ensure that your company has accurate financial records, identify inconsistencies, and maintain the ethics of financial bookkeeping.
• Expenses: Expenses in property management are the transactions you make to cater for maintenance and repair, administration costs, insurance premiums, and utilities.
• Cash accounting method: It recognizes revenue once cash is received and recognizes expenses when cash is paid. This method is typically used to do bookkeeping in small businesses.
• Accrual accounting method: In accrual accounting, revenue is recognized based on the transaction date, unlike once payment is made or received. Similarly, an expense is recognized when revenue is realized, not when cash is received. It is the best method when it comes to managing property management since it works effectively with companies that have employees.
• Financial statement: this is an umbrella term that represents any document that gives details about the financial well-being of your business. The common financial statements include profit and loss statements, balance sheets and income statements.

How to do Bookkeeping for Property Management

Step 1: Select a Bookkeeping Method

Before you proceed with your bookkeeping efforts in the property management field, you should first be aware that bookkeeping is an art. Being an art, you need to set up a bookkeeping method that will drive you to success.

The two major bookkeeping methods are:

1. Single entry

This is a bookkeeping method that is effective for managing small-scale properties with minimal transaction activity. Single-entry bookkeeping is defined as an accounting method where bookkeepers record each transaction in a single-entry journal. 

Basically, it is a cash-based method where a bookkeeper tracks only incoming and outgoing transactions. Transactions are recorded in a single row with either positive or negative values. 

For example, if you start your month with a cash balance of $10000 and you purchase supplies worth $1000, you will record this transaction in your expense column. Then, you wil subtract this amount and indicate the balance as $9000, and vice versa, using your cash book columns. Typically, you record every transaction once in your cashbook.

2.Double entry

In the double entry bookkeeping system, you record your property’s transactions twice. In particular, you must balance your transactions by entering them using debit and credit entries. Here is the difference between single-entry and double-entry bookkeeping systems.

Step 2: Create a Business Bank Account.

To be a successful property manager, separate your personal bank account from your business by opening a dedicated account. A separate bank account boosts your company’s credibility and gives your tenants a good first impression.

It is also beneficial because it protects your property against any legal action in case of failure. A separate business account also makes your bookkeeping work easier, especially when it comes to reconciling accounts and generating financial statements.

You may also use this account for security deposits, which are required by tenants when moving out. However, each state has its laws regarding security deposits, and it is critical for a property manager to be aware of these laws to avoid legal problems.

Step 3: Create a Chart of Accounts.

A chart of accounts refers to a company’s specific accounts that are used to record transactions. Charts of accounts differ from business to business due to the varying business models.

In the property management field, you need a chart of accounts that lists the accounts where you’ll be recording your transactions, such as:

• Assets
• Expenses
• Equity
• Income
• Liabilities

A chart of accounts wil make your bookkeeping work easier because it assists you to label and organize your property management transactions accurately. You can use an Excel sheet to create a chart of accounts or opt for bookkeeping software to make your work easier.

Step 4: Use Property Management Software

As a property manager, you should go above and beyond to make your bookkeeping process easier and effortless. You can do this by investing in reliable property management software tailored to make your work easier.

If you invest in property management software, it can solve basic accounting tasks such as:

• Automating the collection of rent
• Recording rent payments from tenants
• Doing payroll
• Tracking deposits
• Managing and screening tenants

However, you need to do a thorough search among the available alternatives to get a dedicated software for managing your property. Some of the best options in the market include QuickBooks and DoorLooop, and Buildium.

When you have professional software for your property management functions, you can handle the work individually without delegating the bookkeeping roles to a third party. It is also beneficial because it makes your work and communication with tenants easier, for instance, issues related to repairs and maintenance.

Step 5: Prepare for Fluctuating Cash Flows

One of the common challenges to every business is dealing with the rippling cash flows due to unavoidable circumstances. In property management, the challenge is rampant and as a bookkeeper, you should be prepared and ready.

For instance, if you are managing four properties and two are empty, it means you will be experiencing a 50% deficit in terms of cash flow to your accounts every month. In addition, expect other challenges that might affect your cash flow such as:

• Surprise repair bills
• Late rent payments

To avoid inconveniences when such happens, have a pending savings account. Since you have a better understanding of your property, save an adequate amount to cater for the worst that might happen.

In particular, be aware of what might happen if a tenant breaks a lease unexpectedly or what might happen if a sewer breaks in another property. Figure out how you can respond financially and still remain financially healthy.

Step 6: Classify Your Expenses Accurately

One of the challenges most property managers face is when it comes to recording expenses. Specifically, most property managers can’t differentiate between a maintenance and a repair expense.

It is also good to be aware of capital improvements since such expenses have a significant impact on the property when it comes to paying taxes. Always record such expenses accurately to keep track of the value of your property.

Step 7: Reconcile Monthly

As a property management bookkeeper, never ignore reconciling your bank accounts monthly. Reconciling helps you identify the following:

• Duplicates
• Missing entries
• Bank mistakes
• Typos

If you fail to reconcile your accounts, you risk subjecting your bank accounts to fraud, unauthorized withdrawals, and bank errors that are difficult to track later.

Even though it is a time-consuming venture, do it passionately because it will make your financial records accurate and reliable.

Step 8: Manage Invoices and Receipts

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If you want to master how to do bookkeeping for property management effectively, you must be a good record keeper, especially regarding invoices and receipts. Typically, invoices show a payment request while receipts confirm a transaction.

In property management, you need to find an efficient way to manage invoices and receipts. These elements form a company’s cash flow and they are needed for any company to survive.

Since invoices and receipts are needed for tax purposes, you should keep track of them by establishing your own regular tracking schedule. Based on our research, you can use property management software that is tailored to meet your needs. An example of such software is Fortress.

Step 9: Generate Reports for Property Owners

If you are a third-party property manager, you should try to keep your employers informed and up-to-date with your latest bookkeeping records. In particular, let the owners know about the revenue and expenses related to their property.

Typically, income is rent payments and expenses include payments made to repairs, cleaning services, and management fees. You may also want to generate reports regarding marketing activities, upcoming maintenance expenses, renter profiles, and late payments.

Since managing multiple properties can be challenging, generate regular reports and present them to property owners to be a successful bookkeeper.

Conclusion

Just like any other business, property management requires accurate bookkeeping practices to maintain a good financial health for your company. A simple bookkeeping mistake may tarnish the name of your company or even attract unnecessary financial issues that can be avoidable.

We hope our tips above are helpful resources to guide you on how to do property management bookkeeping effectively. 

Do you have any questions regarding property management bookkeeping? We would love to hear from you in our comment section below.

More References

The Business Professor-Property Management-Explained

Zoho-Difference between double entry and single entry bookkeeping

Accounting Coach-Chart of Accounts

Freshbooks: Bookkeeping for Property Management: 8 Best Practices

Buildium-10 property management bookkeeping basics

Wishup-Bookkeeping for Property Management A comprehensive Guide

Prime Property- Property Management Bookkeeping Basics

Fortress-10 Property Management Bookkeeping Practices