The accounting of property management can sometimes get to be a bit complicated.
You’ve got security deposits to manage, certain fees that might be charged, utility bills that might be coming in that a tenant needs to pay – and there’s the rent, of course!
Each item generally needs its own line in a rental property’s annual budget and there may be certain responsibilities that must be accomplished by law for certain budget lines.
The first thing you must know is what must be done to store any security deposits or other required rental deposits.
Some jurisdictions require them to be stored in separate accounts from any profits that are received.
You may also need to notify tenants of changes to the account, who the account holder is, and how they can receive their security deposit back.
1. Know What You’re Required to Disclose
Some landlord/tenant laws require an itemized list of expenses and charges to security deposits or required repair bills a tenant must pay because they have violated the terms of the lease.
Other laws only require that the amount being held is disclosed by job and not a full outline of how the job is done.
2. Keep Your Documentation Clear and Concise
Tenants have the ability to challenge any charges against them if they believe that they aren’t fair.
This requires the property manager to know what going rates for services are in their community so that a fair labor charge is implemented.
If you hire someone who makes minimum wage and a tenant sees a $40 per hour labor charge on their bill, they’ll be able to challenge that charge in small claims court and generally win just by getting a lower quote.
3. Have Precise Procedures in Place if a Tenant Falls into Default
If your tenant is not paying the rent, you need to know this immediately so that you can do something about it.
You must have clear procedures in place for dealing with late rent and how you begin to start the eviction process.
If you treat households differently, then you are setting yourself up for a discrimination lawsuit that can be incredibly costly.
4. Rely on the Professionals
Landlord/tenant laws want to see that you’ve relied on accurate information as a property manager.
They don’t generally care if you’ve done the work or had someone else do it for you.
What needs to be proven is that you’ve done your due diligence to charge a fair rate. If your rental property needs to be cleaned and a licensed and bonded contractor would charge $40 per hour for 3 hours to clean the property up, the most you can charge if you do the work is $120 – even if it takes you 8 hours to get the job done.
5. Keep Every Property Separate
You certainly need to have an overall budget as a property manager, but every property needs to have its own budget line. Each property must also have line-by-line budget items that will help you to accurately track profit and loss so that you can keep up with your income ratios.
By taking these steps, you’ll be able to have a successful accounting experience with your properties and protect yourself legally.
That way you’ll always be able to maximize your revenue streams.