NOTE: This article uses the term "check", please be advised that it is applicable to all locations.
QuickBooks Desktop allows you to set up a company file that lets you run your property management business and do tasks such as receiving and tracking rent from tenants, paying property owners and management companies, fees and overhead charges for property maintenance.
Recommendations for setting up your business
As a property manager, you are actually performing the duties of two different types of companies. For one company, you act as an agent on behalf of the property owner. You collect rent and security deposits, pay for maintenance and repairs, and handle pass-through expenses to tenants. This is the "Rental Property company."
For the second company, you pay yourself by retaining a portion of the receipts, and ensure that the property owner receives the amount of money due. This is the "Property Management company." It's critical that you keep the transactions of the rental property company separate from your property management company. The way to handle this is to create two QuickBooks companies.
- Rental property company: tracks the income and expenses for your client's properties.
- Property management company: represents your own company with its income from management fees and overhead expenses.
Set up tenants as jobs
The tenants of a property you manage are jobs attached to the customers and the properties you manage for them. You should set up each tenant as a job in the Customer:Job list. The Customer:Job list stores information about each tenant, such as contact name, phone, property address, and work phone.
Categorize tenants by type
You can also categorize your tenants by type so that you can distinguish among different types of tenants. Customer types do not appear on QuickBooks forms, but you can create reports based on the information. You can also print mailing labels and statements based on customer type.
Here are suggested customer types for the rental property company:
- Sublet: A tenant who is subletting the property from a tenant.
- Tenant: A person who leases a property.
- Residential manager: A tenant who gets a discount on rent in return for doing some on-site residential management (such as collecting rent or taking care of small repairs). Depending on their workload, some residential managers may be considered vendors (contractors) or employees. In this case, you would not set up a job type for them.
Set up vendors and subcontractors
In QuickBooks, you keep information about your vendors and subcontractors in the Vendor list. Your Vendor list will include your own property management company, and any other businesses you need to pay from the rental property company, for items such as taxes, mortgage, insurance, repairs, janitor, landscaping, homeowner associations, and so on.
The rental properties company is required to send 1099 forms to many types of vendors:
- Property owners (for rent)
- Any unincorporated vendors, such as the management company, for nonemployee compensation.
Create your billable services
The items on your QuickBooks Item list represent the services you provide to your customers and the charges you bill for on your statements. When you need to charge rent to a tenant, choose an item from the Item list and QuickBooks prints the name of the item with its description. If you enter a quantity for the item, QuickBooks also figures out the total and assigns that total to the appropriate income or expense account.
Here are some suggested items you may want to set up for your rental property company:
- A service item called Rent. You can associate the Rent item with your Rental Income account.
- A service item called Repairs/Maint (for repairs and maintenance). You can associate this item with an income account called Other Income.
- A service item called Garage Rent. You can associate this item with your Rental Income account, or you can create a separate income account called Garage Rental. (This lets you see garage rental income separate from property rental income on your profit and loss reports.)
If you manage commercial properties, you may charge tenants for common area maintenance (CAM) fees. Most commercial property managers want to track CAM fees separate from other fees; you can use a combination of QuickBooks items and subitems to track the detail you need. For example, you can set up an item called CAM, with subitems for the types of CAM fees you charge tenants. You may want to create subitems for:
- Parking area maintenance
- Condo association fee
When you set up the CAM item and subitems, you can associate them with an income account called CAM Income.
Set up the properties you manage
You can set up properties as checking subaccounts, and as accounts receivable subaccounts. By setting up a checking subaccount and an accounts receivable subaccount for each property, you'll be able to keep cash and receivables for each property separate from cash and receivables from other properties. This is the recommended way to set up the properties your rental company handles.
An alternative method, setting up a class for each property, means that you can assign income and expense transactions to the appropriate property. However, using this method limits your reporting options.
Naming the properties
You must also decide how you want to refer to each property in QuickBooks. You can refer to the property:
- By name, such as Willow Manor
- By address, such as 101 Middlefield Road
- By code, such as Hoffman02 (the second property of property owner Carl Hoffman)
The examples here refer to properties by address, but choose the way that best suits your business.
Record transactions and complete other tasks
Pay the property owners
After you have entered the checks for fees due to your management company, create another Profit & Loss by Class report to determine how much is due to the property owner. By looking at this Profit & Loss by Class report (which now takes into account your management fees), you can determine the net income for the property. Use the net income figure to calculate what to pay the property owners. You may also want to print this report to send with your check to the owner.
Some property owners receive all of the net income from the property monthly, while others might elect to keep a percentage of the net income in their accounts until a reserve is reached.
- Create an expense account called Owner Payment for assigning the payment to the property owners.
- Write a check with the property owner as the vendor, and assign the expense to the Owner Payment expense account.
If you generate another Profit & Loss by Class report (after writing the check to the property owner), you will see the net income for the property. If the property owner receives all the net income for the property, the net income for the property should be zero on the report. If the property owner leaves a reserve in the account, you should see the reserve amount in the net income.
Receive payments for rent and other charges
Once you receive the rent and other payments from your tenants, you need to record the payments in QuickBooks.
To make reconciliation of banking records easier, follow these steps:
- Manually sort rent checks by property.
- Enter and deposit the rent checks in QuickBooks by property. That is, do a separate deposit transaction in QuickBooks to deposit all the checks from one property. Then go on to do the same for each additional property.
- Make your actual bank deposits by property. That is, make out a separate deposit slip for each property's checks.
If you follow this recommendation, you will see bank deposits for each property listed separately when you reconcile your account in QuickBooks, as well as on your bank statement.
To receive payments by property:
- From the Customers menu, choose Receive Payments.
- From the Account drop-down, select the accounts receivable subaccount for the property.
- From the Customer:Job drop-down, select the tenant.
- Enter the amount of the payment.
- If you have multiple payments on a property (for example, for an apartment with several rental units), select Group with other undeposited funds.
- Select Next.
- Continue entering all the payments for the property.
To make deposits in QuickBooks
- From the Banking menu, select Make Deposits.
- In the Payments to Deposit window, select the payments to deposit, then select OK.
- In the Make Deposits window, select the Deposit To drop-down, then choose the checking sub-account for the property.
- Save the deposit.
Pay the property management company
From the Profit & Loss by Class report, you can determine two important figures to determine the compensation for your property management company:
- Total income
- Late fees (if the late fees get passed to the management company)
In many cases, the property management fee is a percentage of the total income of the property. By looking at the Profit & Loss by Class report, you can determine a property's total income. If the management fee is based on the total (gross) income of the property, use this figure to calculate your property management fee to determine the monthly income and expenses for properties.
If your management company keeps late fees, you can use the report to determine how much to pay the management company for late fees.
Once you have determined the management fees and late fees that should be paid to your management company, write a check in QuickBooks with your management company as the vendor.
When you write a check for the management fees, assign the expense to your management fee expense account.
If you pass the late fees to the management company, create an expense account for late fees and associate the late fee expenses with this account.
Use billing statements for customer charges
QuickBooks lets you bill your customers by sending invoices or billing statements. We recommend that property managers use billing statements rather than invoices, because they are better suited for the periodic billing used by property management firms.
A billing statement is similar to a credit card statement; it lists the charges and payments a tenant has accumulated over a period of time. You enter charges when they occur. If there are any special charges, such as tenant-related damages like a broken window, you can enter them as statement charges, and then print and send the statements. Don't confuse billing statements with reminder statements.
A reminder statement is used with invoices, and summarizes invoices sent during a specific period.
QuickBooks billing statements include the following:
- Balance forward
- Date, number, amount, and description of each statement charge
- Date and amount of each payment received
- A record of finance charge invoices
Each time you want to charge a tenant (for rent, late fees, and so on), you'll enter a statement charge in that tenant's QuickBooks register, using an item from your Item list (such as Garage Rent). You should enter a separate charge for each item. If you have recurring charges (for monthly rental fees or CAM fees), you can memorize the statement charge and have QuickBooks automatically enter the charges for you.
Record rents and other fees
You'll use the customer register to enter statement charges for rent, tenant-related damages, late fees, and so on. When you enter the charge in the register, you should assign it to the Accounts Receivable subaccount for that property. You should also choose the appropriate property in the Class field.
- From the Lists menu, choose Customer:Job List.
- Select the tenant for whom you want to enter a charge, and choose Enter Statement Charges from the Activities menu button. QuickBooks displays the register for that customer.
- Click in the blank entry at the end of the register.
- Fill in the register fields for the new charge
- From the Item drop-down, choose the item, such as Rent.
- In the Rate field, enter the amount of the charge.
- From the Account drop-down, select the Accounts Receivable subaccount you set up for the property.
- From the Class drop-down, select the appropriate property.
- Enter the amount charged.
- Enter the due date.
- Select Record.
- QuickBooks keeps a running balance for the customer.
- (Optional) If you want to memorize the transaction, select Memorize Statement Charge from the Edit menu. You may want to memorize rent charges since they occur regularly.
- (Optional) Print the statement.
Assess late fees
Many property managers assess late fees for rent that is not paid by a specified grace period. You can use the QuickBooks finance charge feature to set up late fees. With the QuickBooks finance charge, you can set up a minimum charge and an annual percentage rate.
To assess a late fee, you'll need to:
- Create an income account for the finance charges.
- Set up finance charges.
- From the Edit menu, select Preferences, then choose Finance Charge in the scroll box.
- Enter your preferred charges and other information in the fields provided.
- Enter a due date when you enter a statement charge.
- Charge a late fee.
Handle security deposits
Most property owners require a deposit from their tenants at the beginning of a lease period. To track receipt of security deposits, you need to create a liability account (called something like Security Deposit) for tracking deposits. Deposits are liabilities because you may return all or some of the deposit to the tenant at the end of the lease, depending on the condition of the property.
After you create a liability account, you're ready to record the security deposits you have received.
To enter a security deposit:
- From the Banking menu, select Make Deposits.
- From the Deposit To drop-down, select the checking subaccount for the property.
- From the Received From drop-down, choose the tenant.
- In the Amount column, enter the amount.
- In the From Account drop-down list, choose the liability account you created to track security deposits.
- (Optional) In the Memo, Chk No., and Payment Method columns, enter the appropriate information.
- If you use classes to track properties, select the Class column drop-down list, choose the property.
- Select OK.
Pass costs to a tenant
In some cases you'll want to pass repairs or property costs to a tenant, rather than to the property owner. You might choose to do this when a tenant damages a property accidentally, or when tenants arrange with you to have work done on the property at their expense. If you have tenants who lease commercial properties, they may be responsible for common area maintenance fees (CAM), such as the utility fees on common areas like bathrooms and hallways.
You can use QuickBooks to write checks or enter the bills for such costs. Before you can assign costs to the tenant, you need to write a check for property expenses.
Then you can use this procedure to charge a tenant for costs.
- From the Lists menu, select Customer:Job List.
- From the Customer:Job list, select the tenant to whom you want to pass the charge.
- From the Activities menu button, select Use Register. QuickBooks displays the register for that customer.
- Select Time/Costs to see billable costs for the tenant.
- Display the Expenses tab.
- Select Select All or choose the Use column, for the costs you want to pass to the tenant.
- Select OK. QuickBooks enters the expense in the customer register.
- (Optional) If you use classes to track properties, make sure the property appears in the Class field. If it doesn't, choose it from the drop-down list.
- (Optional) Print the statement.
Write checks for property expenses
You need to track expenses carefully so that you know exactly which expenses are for which properties. In QuickBooks, tracking expenses by property is simple because the properties are on the Class list.
QuickBooks gives you two ways to pay for property expenses: You can enter the bills for expenses and then pay the bills when they're due, or you can write a check when you receive the bill. The second method, described here, is recommended for property managers.
To write checks for property expenses when you receive a bill:
- From the Banking menu, select Write Checks.
- From the Bank Account drop-down, select the checking subaccount for the property.
- From the Pay to the Order of drop-down, select the Vendor name.
- You can Quick Add the vendor if you have not already set up the vendor.
- If you're entering a lease commission, the vendor is your management company.
- Enter the amount of the check.
- From the Account drop-down, choose an expense account.
- (Optional) Enter a memo about the expense.
- If the expense is for tenant-related charges (you will charge the costs to the tenant), choose the tenant's name in the Customer:Job column drop-down list.
- If the expense is a lease commission or a normal maintenance cost that should be covered by the income of the property, leave the Customer:Job column blank.
- (Optional) If you use classes to track properties, choose the appropriate property from the Class drop-down list.
- Save the check.
Account for any property management company money
When you opened the checking account for the rental property company, you may have put money from the property management company into the account to get it started. If you did this, you'll need to account for that money, which belongs to the property management company.
To account for property management company money in the rental property company:
- Set up a long-term liability account called Owe to mgt company for the portion that is eventually due to the management company. For the opening balance, enter the amount you transferred from the property management company to the rental property company.
- Set up a subaccount to the property company's checking account to track your management company equity. Create a new "bank" account called Mgt Company. Make this account a subaccount of the property company's Checking account. For the opening balance, enter the amount you transferred from the property management company to the rental property company.