Property Management Accounting

By Linda Day Harrison, theBrokerList, Chicago, IL

Walk around your office and various departments. Ask folks what tasks they absolutely hate to do or what seems pointless. You will gain a ton of insight about your processes and procedures. Find out why you do that task. Make sure you dig down deep and study the what-ifs of each task.

For instance, each time we do a batch of “X”, a paper printout is generated. The paper is then put into a bin and we file it by property. Every single company, building, and system is different so this example is just an illustration. The point is to ask, “What is the value of this task?” If you file this print-out by property, what is the value of that print-out, and how many times is it referenced or utilized? Why are you printing it at all, can the printing function be turned off? How long is the data retained? There are many questions to ask, but the most important point here is, somebody just needs to ask.

By Jo-Anne Oliveri, ireviloution intelligence, Brisbane, Australia

I’m sure you are beginning to understand the vital importance of an operational due diligence being conducted prior to your offer to purchase a rent roll becoming unconditional. Once that contract is unconditional you are bound to proceed with the purchase regardless of how inferior the business is that you are purchasing. Yes, I understand that in most purchases there is a retention period, usually three months (again, this is a time period I do not agree with) whereby you have the opportunity to not pay for any managements that you may lose in this period. But, under normal rent roll contracts it’s fairly standard that a percentage of the purchase amount is usually withheld in a solicitor’s trust account and is released when the retention period has expired. Some agents believe this period is their safe guard. Well, I’m here to tell you that you must not be lulled into a false sense of security and, with that said, I feel another article is worthy of this subject.

By Linda Day Harrison, theBrokerList, Chicago, IL

Today more than ever, many people do not have traditional sources of employment income. With the job market shrinking, many of us are working for ourselves and are creating jobs by starting businesses and new ventures. With that being said, how does a self-employed individual purchase a residential or commercial location with the stringent financing requirements currently in place?

By Carla Toebe, New Century Realty, Kennewick, WA

If you have decided to delve into the world of property management then the banking procedures will be a bit more involved than simply having a bank account, making your deposits and payments, and balancing the register at the end of the month. I want to stress that every state’s laws are different. Much of what I talk about in this article relates to the best practices specific to the state of Washington.

The first rule of business is to establish a trust account with your commercial bank. Oddly enough, once you have sat through the session to get this going, do some telephone banking and ask the representative what kind of account you have set up to make sure it was actually set up as a trust account. Just because they tell you that it is a trust account doesn't mean it is. You have to follow up to make sure that the personal banker did their job correctly. You could find out the hard way that this account was never in fact a trust even if you were told it was. If it isn’t a trust then it will not be protected from potential seizure in the event of bankruptcy or other issues with separate personal or business accounts. Do your due diligence and don't rely on the initial set up.

By Linda Day Harrison, Manager Labs, Chicago, IL

There are business models in all shapes and sizes. There are retail stores, medical and legal practices, cleaning companies, general contractors, grocery stores, etc. So when you think about a business, how many business models do you know of where the business owner outsources the entire business to another party? For instance, if you visit your local grocery store, is it managed by a grocery management company? How about a retail store management company? So what makes the residential real estate investment business any different? Why are there so many property management companies and outsourced service providers to the property industry?

According to a colleague of mine, the answer is quite simple, “It is not easy, there is so much at stake, and there are many moving parts.” Also, when you think about properties as investments, there are often multiple partners and joint venture groups who own the assets. In those cases, the managing partner realizes they do not have enough time or expertise to do all of the functions required of them to maximize the value of the asset. That is what outsourcing offers.

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA

For property management companies, the month of January signals a time to prepare and issue year end statements to their clients for tax preparation purposes. Consequently, each January the IRS requires that any taxpayers who have made payments in excess of $600 to workers that are not considered employees must prepare Form 1099 – Miscellaneous Income. Property management companies are also federally required to file Form 1099 for their clients regarding rental income received throughout the year. In addition, copies of this completed form must be provided to the IRS. The IRS compares the payments shown on the information returns with each recipient’s income tax return to determine whether the payments were reported as income and done so properly.

By Steven Van Zile, Total Management, New York, NY

Within the past 24 hours, here are the maintenance issues I’ve experienced at the property where I reside: the maintenance person, loyal to this building for 33 years, responds to a clogged toilet by advising us to pour bleach down the toilet. Concurrently, the intercom buzzer is stuck and won’t shut off. And, of course, the elevator renovation that started out as a one week project actually turned into a three week project, providing 6^th floor tenants the opportunity to save money by cancelling their gym memberships.

It’s always seemed simple to me; as residents, we pay rent, maintenance fees, or mortgage payments and the property management staff provide services for the resident. Building and trust owners hire those property managers based on their abilities to keep churn rates low, vacancy at zero, and tenants happy all at or below a budget designed to re-invest in the property. So what happens when we tenants aren’t happy? Well, in today’s age of instant knowledge and access, a lot of renters turn to rating sites like Yelp or apartmentratings.com to spitefully pen scathing reviews in an attempt warn others. These sites might be seen as a threat, but if you’re really good at your job, more transparency can only help you, and reviews will actually help your business grow.

Let me begin by wishing you all a very Merry Christmas and Happy Hanukkah. For those of you who regularly read my scribbles, you are used to some pretty meaty topics. In light of the Holidays, this one will be a bit frothier. In each blog that I write there are certain themes which remain pretty consistent. One of my favorites is that real estate development is about the coolest industry on the planet. After all, our job is to make the world a better, more usable, more beautiful place.

Often my intended audience is the real estate developer (my hope is of course that there is some part of my subject matter which translates to my non-developer audience- or at least helps you better understand those temperamental developers who constantly tell you ‘We can’t afford that.’). Today, I would like to remind us all of something that is very easily glossed over as we perform our day-to-day tasks.

By Salvatore Friscia, San Diego Premier Property Management, San Diego, CA

A vital part of reducing cost when managing a rental property is limiting the expenses associated with tenant turnover. Tenant turnover usually requires the rental property to be professionally cleaned, painted or touched up, and carpets cleaned or replaced. In order for you to know what expenses to absorb and what expenses to charge back to the tenant, you should always know the current condition of the property as well as the condition in which the property was given to the tenant.

To accomplish this, each tenant should be provided with a written “Move-In/Move-Out” checklist. The “Move-In/Move-Out” checklist allows both parties to identify in writing the initial “Move-In” condition and the final “Move-out” condition of the property. These checklists will eliminate any misunderstandings regarding which party will pay for non-normal wear and tear repairs throughout the tenancy and upon move out. Prior to giving the keys to the tenant the owner should completely inspect the property and document the existing condition on the “Move-In” side of the checklist. It is necessary to document the condition of the appliances, windows, screens, blinds, doors, walls, lighting, flooring, a/c, heating, toilets, faucets, ceiling fans, and any other necessary interior and exterior areas. During the initial walk-through with the tenants, it is important to review the findings with the tenant and have the tenant sign and date the document.

By Salvatore J. Friscia, San Diego Premier Property Management, San Diego, CA

Every property owner should require tenants to issue a refundable security deposit which is held on file to insure against non-performance of the lease agreement. Non-performance may be, but is not limited to, anything from damages occurring during occupancy to expenses accrued due to the tenants conduct or failure to pay rent.

The confusion begins with the property owner not knowing how much to require the tenant to issue for the security deposit. It is important to understand that security deposits for residential properties are controlled by statute and call for nondiscriminatory  and equal treatment. It is a prohibited discriminatory practice to charge a family a different amount then an applicant without children. It is also prohibited by law to require an excessive amount for the security deposit. In addition to collection of one month’s advanced rent, the maximum security deposit allowed (at least in the state of California) for an unfurnished unit is two months rent and three months rent for furnished properties. [California Civil Code 1950.5(c)] Check your local area laws for similar guidelines in your area.