Many of my clients are property owners and real estate investors. Most are experiencing difficult times from the plummeting market values of their properties and from the declining collectibility of rental receipts. One of my primary concerns as their certified public accountant is the deficient state of their record keeping, often entrusted to their property managers.
Every month property managers should be submitting reports to their clients, including a monthly profit and loss statement, tenant receivables report showing all outstanding balances, accounts payable report, bank reconciliations for all cash accounts of owners accompanied by copies of bank statements, and memorandums regarding repairs, improvements, evictions, vacancies, etc. Ideally, cash flow projections and comparisons to budgets should be included as well.
Most of my clients receive little, if any reports, monthly. As a remedy to not receiving monthly reports from the property managers after repeated requests for them, I have suggested to my clients that they seize control of cash, requiring all rental receipts to be deposited into bank accounts from which they only have access for withdrawals, and to transfer requisite funds into the property managers' bank accounts upon receipt of the monthly reports desired. Let’s face it: money talks. And if property managers want their monthly property management fees, seizing control of the funds customarily prompts them to be more accountable to their clients, the owners of the properties.
In addition, it is essential to have separate bank accounts with similarly restricted access established for all capital improvements. Before the disbursement of any funds into the property managers' operating bank accounts, the owners should require the receipt of requisitions for the expenditures, accompanied by certificates of insurance, W-9 forms, signed purchase orders and/or contracts, schedules of completions, permits, licenses, etc. Likewise, all security deposits should be escrowed in separate bank accounts controlled by the owners of the properties.
Of course, the owners of properties must make these policies known to the property managers in a formal written policy and procedure notice, asking them to sign off on them. (I always advise my clients to have their attorneys draft or at least review these documents.) If they fail to agree, I then advise my clients to find other property managers.
For more information on the reports that I would require as a property owner and the means to accomplish the receipt of these reports on a timely basis, please see my article, “How to Manage Your Property Manager: A Foolish Property Owner and His Money Are Soon Parted!”.
This article is provided for informational purposes and is not intended to be construed as legal, accounting, or other professional advice. For further information, please consult appropriate professional advice from your attorney and certified public accountant.
Have a tax or an accounting question? Please feel free to submit it to William Brighenti, Certified Public Accountant, Hartford CPA Accountants. For information and assistance on any tax and accounting issue, please visit our website: Accountants CPA Hartford.