Hi everyone! Today, I would like to address a great question from a reader who is in the property management business. Carol sent in this question:
I am a property manager and I invoice my landlord using QuickBooks Enterprise. My question is, how do I accept payment and mark the invoice as paid, but apply that payment as a deduction out of the rent that is due to the landlord?
As a landlord, hiring a great property manager can make or break your business. Finding the perfect person for the job accounts for half of the journey towards the profitable endeavor of becoming a landlord. From advertising the property, collecting rent to handling, maintenance and repair issues, an awesome property manager will deliver you from suffering all the headaches and hassles that come with leasing out your property. A great property manager is perfectly capable of taking care of all the things that take the fun out of being a landlord.
As a property manager, aside from providing the best services in these aspects to the landlord and the tenants, one of your most important duties is making payments to the landlords. Ensure that prompt and correct payments are made to the landlord’s foster trust. It builds a great partnership that will create a continuous revenue stream for years to come.
Just like in the situation of Carol, being the middleman between tenants and landlords can put you in a confusing situation when it comes to bookkeeping. Using QuickBooks contributes to better bookkeeping since it allows property managers to easily keep track of all transactions, especially when invoicing landlord’s and tenants.
Before discussing how to make and track payments to owners using QuickBooks, be sure that the following are on-hand for quick reference:
Property Management Agreement
A property management agreement is a contract between the property owner and the property manager. It is a written agreement that clearly outlines the responsibilities of both parties and the terms of the relationship. Putting everything into writing and not relying solely on verbal agreements will lay down clear rules and avoid confusion in the course of the partnership. One of the most important aspects of the agreement is the calculation of the proceeds that will go to the owner. Other important information in the agreement includes:
- Basic information – This will include the name of the owner, address and details of the property.
- Validity period of the contract – This part will state the definite dates that will indicate the duration of the contract and when responsibilities for both parties will start and end. A clause regarding termination should also be included in this portion.
- Responsibilities of both parties – This portion will lay down all the responsibilities of both the property manager and the owner. On the part of the property manager, it will list down all the services that they will need to render to effectively manage the property. It will also outline which services are included in the management fee and which services would fall under extra management duties and may require payment of additional fees. This portion will also indicate the obligations of the property owner which include responsibilities such as payment of insurance, maintenance of a reserve fund and other restrictions that will prevent the owner from doing certain things to the property.
- Reserve fund – The property owner should allot a specific amount for a reserve fund for each of their properties. This fund will be used by the property manager for maintenance costs, emergencies and other obligations.
- Security deposits – This portion will discuss who will hold the current tenant’s security deposit and who will hold the security deposits for new tenants.
- Maintenance and Repair Issues – This portion will tackle how the property manager is supposed to deal with maintenance and repair issues. An important clause to include here is whether all repairs should be subject to the owner’s approval. A specific amount may also be indicated as the limit.
- Management fees – This fee will go into detail how much the property manager will charge the owner. It may be a percentage of the lease or a flat rate fee.
- Payments to the Owner – Owner’s proceed will indicate how much of the property’s proceeds will go to the owner. It will also indicate the specific dates when the payments would be due and for which periods these payments will refer to.
Tenant Lease Agreement
A tenant lease agreement is a contract between the property owner and tenant of the property. It outlines the rules and responsibilities that will govern the relationship between the two parties. The most basic points that the agreement should cover include
- Rent – Rent is the most important part of the agreement. This portion will indicate the amount of the rent, when it is due for payment and the modes of payment including lease term. This portion should also include a clause on late charges and a grace period if desired.
- Responsibility for repairs – Set specific guidelines for the tenant’s responsibility in maintaining and introducing repairs to the property. It should indicate that the tenant will be responsible for any damages that are caused by his or her actions. This portion should also state that any alterations or repairs that will be done to the property should first be consulted with the owner.
- Security deposit – Security deposit should not only indicate the amount. It should also discuss how it can and cannot be used and how and when it will be returned after the end of the rental relationship.
To address the issue on how the payments to the owners should be made, these documents should first be consulted. One of QuickBooks’ great features is allowing the attachment of scanned copies to the transaction records. That way, you do not have to sort through a lot of paperwork every time you need to refer to them. You can easily access and view these documents in QuickBooks.
Quick disclaimer, though. The solution that I will present to Carol’s dilemma may or may not work on your QuickBooks file since the implementation, process and procedure may be different. However, the same concept can be applied to QuickBooks Pro, Premier, Enterprise and Online versions.
First and foremost, you need to refer to the property management agreement between you, the property manager, and the owner. You may invoice the owner and deduct the amount from the owner’s proceeds by following the example given below:
For example, the monthly rent collected for the current month is $1,300. The property management fees are set at 10% of the rental income. Property repairs amounting to $300 were also introduced to the property. We may refer to the Property Management Agreement to ascertain the amount of the management fee. The Tenant Lease Agreement will also show the rent that is due for the month as well as determine if the repairs will be charged to the tenant or the landlord.
The first thing to do is to create an invoice for the management fee and the property repairs. Based on the example, these are both chargeable to the property owner. To do this, go to Customers >Create Invoices. Enter all the relevant details in the Create Invoices module.
Then, enter the payment received by going to Customers > Receive Payments. Enter all the relevant details. This will mark the invoice as paid.
To make the payment to the property owner, you need to write a check for the difference by going to the Write Checks – Checking module.
As I have always said QuickBooks is the one stop software for property management and financial management. Thus making it a breeze to create owners statements in a few seconds.
It is that simple and easy! QuickBooks is a very powerful tool for all your bookkeeping needs in your property management business. If you have any other questions about it or need any form of assistance with your bookkeeping, you may leave a comment below. I will be glad to help you out!