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Entering Gross Rent collected by a property manager correctly into Quickbook

I own multiple residential properties that are managed by a property management company. I'm told I'm doing the accounting wrong.  Up to now,  I have been using the Prop Mgt's "owners draw" as my starting rental income and taking the additional expenses (interest, taxes, additional repairs, utilities, capital upgrades) off the "Owners Draw"  to come to net income.  Note. The property management company takes their 8% off the gross and some repairs and maintenance before giving my "owners draw"  What accounts and journal entries do I need to make to start or capture the true gross rent and repairs done by the Property Management company' 

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Entering Gross Rent collected by a property manager correctly into Quickbook

Journal Entries blur the lines between accrual and cash reporting. Since you already have a Deposit, work from it.  Add a line (negative) for the PM fee, and any other lines (negative) for expenses deducted. Negative expense on a deposit equals a positive actual expense.  Change the draw amount to equal gross rents such that after the deductions the net deposit does not change.

 

Or, after the fact, since you have recorded a net owner draw you can add a zero dollar deposit or zero dollar sales receipt, that include Gross Rent as positive, PM fees and other deductions AND owner draw received all as negative.

 

One thing to be careful of is when you record the gross rent. If you are on cash basis record the receipt of gross rent the month the PM collected it. If accrual you should record charged rent to tenants when billed regardless of when they pay PM or PM pays you.  Accrual landlording, although encouraged with outside investors that are used to seeing corporate returns, will cause you to have taxable income greater than COLLECTED rent

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Entering Gross Rent collected by a property manager correctly into Quickbook

By starting with net received you are missing the off the top expense, which are yours.  Start with gross rent. Deduct management fees, deduct repair and maintenance, and all other expenses you pay. Each property is reported in its own column of Schedule E.

 

The owners draw is just that, a draw against income and is not your reportable income. In fact if your pm collects more than $600/year from you then you should issue them a 1099.

 

To capture true gross rent you only need a Sales Receipt. Note that the net receipt will be equal to the draw.  If you do not know gross rent (should be provided along with their pay.ents) then enter the management fee as negative and also as negative any other deductions.  Then add this amount (as a positive number) to net you received and this would be the gross rent to enter on the sales receipt.

 

Be sure to segregate all of these by property. Class tracking is my prefefence,preference, will give you a proper P&L by Class for your Schedule E's

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Level 1

Entering Gross Rent collected by a property manager correctly into Quickbook

So you would use a JE to add the Gross Rent and then subtract the expenses on the JE? I'm not familiar with the Sale Receipt approach.  The "Owner's Draw" is already captured in Quickbooks via a checking account deposit.  (The PM deposits the Owners Draw in the property's checking account.) I use a different class and checking account for each rental unit.  

 

Would you still recommend the Sale Receipt approach?  I will have to study the procedure.

 

How would you capture Late Fees / Late Fees paid?

 

I feel like l'm very close to a final answer.  Thanks john-pero!

Highlighted
Community Champion

Entering Gross Rent collected by a property manager correctly into Quickbook

Journal Entries blur the lines between accrual and cash reporting. Since you already have a Deposit, work from it.  Add a line (negative) for the PM fee, and any other lines (negative) for expenses deducted. Negative expense on a deposit equals a positive actual expense.  Change the draw amount to equal gross rents such that after the deductions the net deposit does not change.

 

Or, after the fact, since you have recorded a net owner draw you can add a zero dollar deposit or zero dollar sales receipt, that include Gross Rent as positive, PM fees and other deductions AND owner draw received all as negative.

 

One thing to be careful of is when you record the gross rent. If you are on cash basis record the receipt of gross rent the month the PM collected it. If accrual you should record charged rent to tenants when billed regardless of when they pay PM or PM pays you.  Accrual landlording, although encouraged with outside investors that are used to seeing corporate returns, will cause you to have taxable income greater than COLLECTED rent

View solution in original post

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