Property Managers are on the front line of responsibly handling a property’s financial transactions. By following the below best practices, Property Managers will be able to stay in compliance with their area’s financial regulations, keep their ledgers straight and have great reports to send to tenants and owners- as well as be over-prepared for an audit. This can often be accomplished with the aid of a solid property management software solution to nail down best financial practices.
Property Management Software Eases Woes of Managers
Establishing proper trust fund accounts for the property helps ensure that funds are used for their intended purpose. The quickest way to get flagged for an audit is by sloppy (or inappropriate) use of trust accounts (although some states perform regular audits of trust accounts). A trust account is an account created to hold funds that belong to another party. Essentially, any funds collected for a property must be deposited into a trust account. It is recommended that separate trust accounts be set-up; one for security deposits, another for rent collection and bill payment (also income producing equipment or appliances servicing a property, such as laundry or vending machines) and one for owner funds (most states require that the tenant and owner funds have separate trust accounts). This helps to maintain clear, separate records of individual owner funds, tenant security deposits, and operating funds. The greatest benefit to having trust accounts is that they are protected from potential seizure in the event of a bankruptcy or issues with other property accounts.
Needless to say, Property Managers should never co0mingle accounts; they should obviously keep company and personal funds separate from trust account funds. Owner funds contained in a trust account cannot be commingled with any other funds, as this is prohibited by law in most states. When depositing funds, make sure that they are going to the correct trust account; owners’ funds into the owners’ account, tenant security deposits in the security deposit account (which, if not done properly, can create an accounting headache). In many states, funds received in connection with the purchase or lease of a property must be deposited in a trust account no later than the next business day; however, this is easily done through the use of check scanning equipment, or even a mobile bank app. Also, many states and municipalities have laws that dictate how the funds should be handled, so it behooves Property Managers to be aware of the accounting and trust guidelines in their area.
Most states require that all security deposits held on account must be reconciled monthly with the rent roll but this can easily be handled with the use of a good Property Management software (like Budgetrac) to tie out to the trust’s statement. The Property Manager is ultimately responsible for the appropriate management and disbursement of the deposits, which, technically, are still the tenants. Leases should clearly state which institution the security deposit account is being held. In the case that an owner has decided to hold the security deposits, the Property Manager should think on their feet and hold back rental income equal to the amount of those security deposits and place them in the trust account.
Property Managers may have to keep hard copies of documents and transaction records, even if the property management system used can contain them electronically. By maintaining meticulous records of all financial transactions related to the property, the Property Manager can also monitor income and expenses for their properties, and facilitate the ability to spot trends and find answers to common property, owner and tenant questions Reporting would be accurate, and easily accessible.
Financial transactions are a Property Managers greatest bane; receiving tenant funds, handling owner and vendor payments, dealing with the bank accounts and keeping on top of state and municipality laws can be quite the burden. By adhering to GAAP rules and using tools such as a vibrant property management software (like Budgetrac), the Property Manager can ensure that they will be able to stay on top of their financial responsibilities.