Beginner’s Guide to Property Management Accounting

Starting your journey as a property manager can be exciting—but managing the financial side of things might feel overwhelming.

For emerging property managers, learning the basics of property management accounting is the key to running a smooth, profitable rental operation.

This guide simplifies accounting concepts, defines the terms you’ll need to know, and breaks everything down into actionable steps—designed for those managing a maximum of 10 properties.

Let’s start building your financial confidence!

What Is Property Management Accounting

Property management accounting is all about keeping track of your rental property’s income and expenses. Think of it as the process of organizing your finances so you can:

• Know how much money you’re making (or losing).
• Track where your money is going (like repairs or utilities).
• Stay ready for tax time without stress.

Key Terms Defined:

• Income: Money you earn from rent, late fees, or other services.
• Expenses: Costs like repairs, property taxes, and maintenance.
• Profit: What’s left after subtracting your expenses from your income.

Why Emerging Property Managers Need Good Accounting

If you’re managing a few units, it might seem easy to handle your finances casually. But here’s why accounting matters even with a small portfolio:

• Avoid Confusion: Mixing personal and rental finances can lead to headaches during tax season.
• Spot Problems Early: Accurate records help you identify late payments or overspending.
• Save Money: Tracking deductible expenses (like repairs) reduces your tax bill.

Example Scenario:

Imagine your tenant pays rent late. Without a system in place, you might forget to follow up. Good accounting ensures you stay on top of every payment.

Setting Up Your Property Management Accounting

Here’s how to get started with a simple accounting setup:

1. Open a Dedicated Business Bank Account:

• Why? This separates your rental income and expenses from personal finances, making it easier to track.
• How? Visit your bank and request a small business checking account for your rental properties.

2. Choose an Accounting Method:

• Cash Accounting: Record income when rent is paid and expenses when they’re paid. Easy and great for smaller portfolios.
• Accrual Accounting: Record income and expenses when they’re due (even if not yet paid). Provides a fuller financial picture.

3. Create a Chart of Accounts:

• Think of this as categories for your money. For example:
  • Income: e.g., rent payments, late fees.
  • Expenses: e.g., repairs, utilities, property taxes.
  • Liabilities: e.g., security deposits (money you owe back to tenants), credit card debt.

4. Start Tracking Right Away:

• Use simple tools, like a spreadsheet or software, to log every transaction.

Common Accounting Terms for Emerging Property Managers

Here are some terms that you’ll encounter often in property management accounting:

• Accounts Payable: Bills you need to pay (like maintenance invoices).
• Accounts Receivable: Money tenants owe you (like unpaid rent).
• Reconciliation: The process of checking that your records match your bank statement.
• Deductible Expenses: Costs you can subtract from your taxable income to save money on taxes.
• Liabilities: Debts or obligations, like security deposits or unpaid bills.

Accounting Best Practices for Emerging Property Managers

Reconcile Monthly

Match your bank statement with your records to ensure everything is accurate.

Why It’s Important: Reconciling your bank account ensures your records match your bank’s, which helps catch errors like missed payments, duplicate entries, or unrecorded transactions.

It also gives you a clear snapshot of your cash flow (the movement of money in and out your property management business).

How to Do It:

1. Compare Transactions: At the end of each month, review your bank statement alongside your accounting records.
2. Look for Discrepancies: Highlight any transactions that don’t match, such as unexpected charges or missing deposits.
3. Correct Errors: Update your records or contact your bank if needed to resolve mismatches.
4. Tools to Help: Property management software like DoorLoop connects to your bank account, making it easier to reconcile transactions automatically.

Pro Tip: Set a recurring calendar reminder to reconcile on the same day each month—reconciliation only takes a few minutes if done regularly.

Separate Security Deposits

Treat security deposits as liabilities (money owed back to tenants), not income.

Why It’s Important: Security deposits aren’t income—they’re money you hold temporarily and may need to return to tenants at the end of the lease.

Misclassifying them as income can lead to inaccurate financial reports and tax issues.

How to Do It:

1. Use a Separate Account: Open a dedicated account for security deposits to keep them distinct from your operating funds.
2. Track Deposits as Liabilities: In your accounting system, record deposits as “Liabilities,” since they represent money you owe back to tenants.
3. Document Changes: When returning or using a deposit (e.g., for repairs), update the tenant’s record and adjust the liability account accordingly.

Pro Tip: Many states have specific rules about how security deposits must be handled, including interest requirements. Check your local regulations to stay compliant.

Record Expenses Immediately

Log costs like repairs and maintenance as soon as they happen to avoid missing deductions.

Why It’s Important: Delaying expense tracking increases the risk of forgetting transactions or misplacing receipts, which can lead to errors in your records and missed tax deductions.

How to Do It:

1. Log as You Go: Record expenses, like repair bills or maintenance costs, as soon as they occur.
2. Use a Receipt Tracker: Take photos of receipts using accounting software or apps like Expensify to keep everything organized digitally.
3. Categorize Expenses: Assign each expense to its appropriate category (e.g., "Repairs," "Utilities") in your chart of accounts.

Pro Tip: Make it a habit to check your expenses weekly to ensure no transactions slip through the cracks.

Automating Accounting for Emerging Property Managers

Many emerging property managers start with spreadsheets or QuickBooks but soon realize that these tools lack features specific to property management.

Here’s why upgrading to a property management software like DoorLoop is worth it:

Benefits of DoorLoop's Automation:

• Automated Rent Collection: Set up recurring payments to ensure rent is paid on time.
• Expense Tracking: Snap a photo of receipts and categorize expenses automatically.
• Financial Reporting: Generate reports with a click of a button to see how much you’re earning and spending.

How to Transition from Spreadsheets to Software:

• Export your current records (spreadsheets or QuickBooks).
• Import them into DoorLoop.
• Use built-in templates for rent collection and expense tracking.

Mistakes Emerging Property Managers Should Avoid

Mixing Finances

Keep a separate business account for all property-related transactions.

Why It’s a Mistake: Using the same bank account for personal and property-related transactions creates confusion during tax season and makes it difficult to track rental income and expenses accurately. It can also lead to non-compliance with tax regulations if audited.

How to Avoid It:

1. Open a Dedicated Business Bank Account:
   • Use this account exclusively for rent deposits, maintenance expenses, and other property-related transactions.
2. Keep Personal Expenses Separate:
   • Avoid paying for personal items using funds from your rental account.
3. Use a Business Credit Card:
   • This simplifies tracking expenses and helps maintain financial separation.

Example: If you buy groceries with the same card you use for property repairs, it’s hard to determine which expenses are deductible at tax time.

Forgetting Deductibles

Track deductible expenses (like repairs and marketing) to save on taxes.

Why It’s a Mistake: Overlooking deductible expenses means you’re paying more taxes than necessary.

Repairs, marketing, and even travel to your properties can reduce your taxable income when properly documented.

How to Avoid It:

1. Know What’s Deductible:
   • Repairs, maintenance, property management fees, insurance, property taxes, and advertising costs are commonly deductible.
2. Track Expenses in Real Time:
   • Record costs immediately and save receipts digitally or in a secure folder.
3. Review Deductions Annually:
   • Work with a tax professional to ensure you’re maximizing deductions without crossing compliance boundaries.

Example: If you spend $500 on a plumbing repair but forget to record it, you’ll lose out on a deduction at tax time.

Skipping Monthly Reviews

Why It’s a Mistake: Waiting until the end of the year to review your financials can lead to surprises, like untracked expenses or insufficient cash flow for unexpected repairs.

Monthly reviews keep your finances organized and provide insight into your property’s performance.

How to Avoid It:

1. Set a Monthly Schedule:
   • Dedicate time at the end of each month to review income, expenses, and bank reconciliations.
2. Use Financial Reports:
   • Generate profit-and-loss statements or cash flow reports to understand your property’s financial health.
3. Address Issues Promptly:
   • Correct any discrepancies or unpaid invoices right away to avoid snowballing problems.

Example: If you discover during your monthly review that a tenant’s rent payment didn’t go through, you can address it immediately rather than months later.

Conclusion

Property management accounting doesn’t have to be complicated. For emerging property managers, the key is starting simple: track income and expenses, separate your finances, and upgrade to tools that make the job easier.

Want to take the guesswork out of property management accounting? Schedule a demo with DoorLoop today to see how our software helps you automate rent collection, simplify expense tracking, and stay organized as you manage and grow your portfolio.