Whether you’re a property manager who takes care of your own books or you outsource all your accounting needs—or anywhere in between, it is important to have a grasp on accounting best practices. Doing so will ensure that your business runs as smoothly as possible, and with less financial headaches; you’ll reap the maximum benefits from all the time, money, and energy you’ve put into managing your properties.
Taxes and Expensing the Right Items
As a Property Manager, there are a lot of moving parts. Understanding the basics like fixed assets, liabilities, and what defines a true expense is a surefire way to properly manage your transactions.
- Fixed assets are long-term assets that are used to generate income that cannot be quickly converted into cash. Land, equipment, and property are examples of fixed assets.
- Liabilities are financial items that the property manager is responsible for disbursing: accounts payable, wages and salaries payable, income and other taxes, interest and payments owed on any outstanding debt, and tenant deposits, to name a few.
- “True” Expenses are interest, property taxes, depreciation, materials, supplies, and repairs as well as operating expenses for managing and maintaining rental properties. These expenses are often tax deductible as long as they are used to operate a property. One caution: Improvements are not tax deductible unless they are expended to modify the property for a different use.
Keeping Clear and Obvious Streams for Money
As a property manager, it’s important to keep different financial aspects of your business separate so you can spend your time focusing on your property and tenants instead of always needing to untangle your propertys’ finances. In other words, trying to operate from one account can be very problematic. Here are recommendations for three separate accounts to help facilitate smooth financial operations as a property manager:
- Trust account: Escrow and security deposits are housed in this type of account.
- Business account: This account is used for business and operating expenses like vehicle expenses, office expenses (rent, utilities, etc.), business travel, some meals and entertainment (as long as business is discussed before, during or after), depreciation, equipment and tool rental, materials and supplies, legal and other professional services, insurance, and other like expenditures.
- Regular account: This is where you keep any rental income, and monies from this account can be transferred to the business account to be used to pay for business-related expenses.
Outsourcing Your Accounting
If you’re not a CPA, or you’re not very educated as far as current and always-changing tax codes are concerned, ask yourself if it really is the best use and value of your time to try to manage the accounting of your business. The answer is likely no, and you’ll find that you may be more profitable leaving the accounting aspects of your business to the pros and using your time and talents in other areas of your business. In many cases, handling the accounting yourself is likely to take away from your profits, while outsourcing can likely multiply them.
If you decide to outsource your accounting needs, how do you choose the right professional? First of all, you’ll want to make sure you hire a CPA or an Enrolled Agent. Other than that, here are some tips for finding the right professional for your needs:
- Ask for referrals from friends, fellow property managers, or through any real estate networks you belong to.
- Make sure they specialize in real estate accounting.
- Do some research to discover 1) how well recognized they are in their specialization, 2) if they’ve received any professional awards or recognitions, 3) how they operate their own business, and 4) if they represent other property managers with a similar business structure. Just because an accounting professional comes highly recommended is not a 100% guarantee that they will be the right fit for you and your business.
- Find out what services they utilize and provide as far as software, reporting (so you can evaluate the past, present, and future), tax planning, advice when needed, etc. Having the right services available at all times can be the difference between profit and loss, and success and failure.
Automate Wherever Possible
As a property manager, you want to have all the tools necessary to keep the financial components of your business on track 24/7/365. The right automation tools can play a major role in the success of your business AND decrease your stress as a property manager. This all-important aspect of your business is where REdirect can play a major role. Our expertise is in real estate technology services, and several on our team were CPAs, Controllers, and in Accounting in a previous life. When you partner with us, here are some of the benefits you can expect:
- Software customization and implementation
- Training and support
- Payment tracking and automated payment reminders
- Digital record keeping of all maintenance-related items
- Report generation
Visit our services page or contact us to learn more about the services we provide that can take you and your property management business to the next level and beyond.