How do you handle your books when a PM manages your portfolio?

Question

I have a handful of properties which are all managed by the same property manager. They use Rent Manager, and I'm able to log in and view all the standard reports as well as a complete general ledger detail. However, I pay the mortgage (principal and interest) as well as property taxes and insurance myself. My low-tech solution has been Excel, and I typically wait until tax time to compile complete financial statements. I'm curious what other investors do? Does your PM pay all the bills to provide complete financial statements? Should I be looking at QuickBooks or another solution? Seems redundant to duplicate all the accounting in another system, but I would really prefer to have a complete set of books each month.

Or if you have properties that are more dispersed and use multiple Property Managers where do you consolidate everything?

Thanks for any feedback you might be willing to offer!

Or if you have properties that are more dispersed and use multiple Property Managers where do you consolidate everything?

Thanks for any feedback you might be willing to offer!

Patricia Steiner · Answer

Please don't leave the payment of your loans and taxes to the PM.  It's a frequent occurrence on BP that a ball gets dropped and the owner pays a hefty price.  The PM needs to manage the property and oversee tenant engagement and compliance - but you need to control the wallet.  It's your financial health. Don't trust that to someone who doesn't have the financial background or expertise to oversee a financial investment.

Nathan Biller · Answer

@Christopher Smith Thanks for letting me know I'm not alone! This has recently gotten more complicated as I've added partnerships and am now dealing with K1s which necessitate accurate balance sheets. This past year my CPA's charge for my taxes was much higher than usual because my financial statements had be reconstructed. I wonder if it would, on net, be cheaper to pay for perfect books and then have lower tax prep costs.

@Bill Hampton I actually have a Stessa account and that seems like an amazing option IF I managed the property myself. But because all of my expenses hit my PMs accounts before they allocated to me there's nothing for them to automatically import from a bank account. Unless I'm missing some of the core features? It would be awesome if Rent Manager allowed me as an owner to go in and layer in my PITI, so that I could have a complete set of books (I e-mailed them to ask about a potential solution they'd recommend).

@Patricia Steiner I don't currently have my PM pay my mortgage, but I have friends who do and they've all had positive experiences with it. What you're saying makes sense: they're acting as the CEO of my portfolio and I need to act as the CFO. But your warning doesn't answer my question about the best way to ensure I have complete and accurate books. I feel like I'm doing a poor job as my own "CFO" what with using an enterprise-level accounting system like Rent Manager and then exporting it to Excel to add in a few additional transactions. I used to work for a Fortune 1000 in corporate finance, and am used to closing the books each month. I know my current method is NOT best-in-class. I'm really eager to learn best practices though :)

Thank you to all three of you for your ideas! They're greatly appreciated!

Christopher Smith · Answer

That's what I do.

Just a very simple tax based spreadsheet where I contemporaneously add any items that I pay directly (RE tax, Insurance, some occasional Misc), then a section at the end of the spreadsheet columns where I capture all PM expenses at the end of the year all by property. Very straight forward been using it for years no need for anything more sophisticated (complicated). My tax returns are essentially the same reporting as I would have if I generated financial statements, so I will use them as such if necessary.

I actually have two PMs since I have properties in two states, but it adds no more meaningful complexity to my very basic spreadsheet layout. My PMs generate monthly financials if I needed them which I really don't but have them saved in case I'm called upon to produce anything with such reporting.

Basit Siddiqi · Answer

@Nathan BillerIf all you are concerned with is tax reporting, you can likely give the accountant the following items and he should have a good start to preparing your tax return as it relates to your real estate investments1) year to date activity report generated by property management company2) 1098 from mortgage company detailing mortgage interest, real estate taxes paid for the year3) Insurance receipt4) call with the accountant on any other expenses paid, travel to and from the property, home office, etcNow if you want to have a monthly record of how your property is doing, you should take the monthly statement your PM is giving you and summarize it with the out of pocket expenses you pay for in some accounting software of excel.

Roni E. · Answer

@Nathan Biller

Yes pm should be doing books and you monthly books, and use Quickbooks.

Steven Hamilton II · Answer

You should maintain a set of books that incorporates the statements that are provided to you. Speak with your accountant for guidance.

Bill Hampton · Answer

@Nathan Biller

check out Stessa dot com. It's free

How do you handle your books when a PM manages your portfolio?

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