Accounting for rental properties

jenakason · ‎February 02, 2021

Good afternoon. I asked this question previously and never received a response. Hoping for some help! I am redoing our records for our past rental property investment business. We use a property management company that collects rent each month and sends us a check for the said rent less any maintenance/repairs they paid out as well as their property management fee. I also have other expenses that we pay on our own throughout the year (mortgage, taxes, insurance, etc.). I have generated invoices in Quickbooks for each month's rent (and created classes to correspond to each invoice and expense). I then make a payment for the same amount as the rent was, leaving the payments as 'undeposited funds'. I've also entered all expenses from the management company as well as our own expenses that have incurred throughout the year. I created two separate checkbooks (one being our internal account and the other labeled checking - property management company). All expenses are allocated accordingly to who paid for each expense. After I've entered everything for the year, I'm left with a negative balance for both of my checking accounts and the total gross rents under my 'undeposited funds' account. The net of these equals my profit/loss for the year. I'm wondering how I should go about transferring the undeposited funds account into my checking account. Do I "make a deposit" each month or at the end of the year to reconcile? Since the leftover profit would be going to my internal checking account, do I put it all there? This means my property management checking would always show a negative balance. I just want to make sure I do everything right from the start, as I'm going back a few years and want to make sure everything is done accurately going forward. Also - do I need to somehow add in retained earnings or year end profit after each year or is this automatically figured when you run a report? One more thing...I have figured out how to allocate mortgage payments (principal vs interest) through a separate post. Wondering now what to do for the properties we have that escrow the insurance and taxes? Do I just make a separate item like I did for the mortgage interest and allocate each total mortgage payment accordingly?

MariaSoledadG · ‎February 02, 2021

Let me share a few information about Undeposited Funds in QuickBooks, jenakason.

The Undeposited Funds account holds customer payments in QuickBooks until you deposit them at your real-life bank. You'll have to record a bank deposit and combine the payments in QuickBooks. All payments in the Undeposited Funds account automatically appear in the Bank Deposit window. It's also a good thing to clear out payments from your Undeposited Funds to prevent any issue.

On the other hand, if you're getting a negative balance from your checking account, you may have transactions that are missing and aren't recorded in QuickBooks. You'll have to make sure you've recorded all the possible transactions. If you've found it hard to distinguish which transactions are recorded, I suggest reaching out to your accountant to simplify things for you. They also know more about retained earnings concerns and how you can separate items for your mortgage interest.

In addition, for reconciliation of your checking, saving, and credit card accounts, we recommend you do it every month. This way, comparing your bank statements to the list of your transactions wouldn't be more complex since you'll have to do it on a monthly basis.

For reference, you'll want to create reports in QuickBooks for Mac to give you an overview of what's happening in your business.

Please touch base with us if there's anything else that you need to know about your QuickBooks transactions. Don't forget, we're always here to do the best that we can do to help you.

jenakason · ‎February 02, 2021

Thanks for the response. I understand the undeposited funds account along with making deposits (I've been running Quickbooks for our landscaping business for 12 years). I have made 2 bank accounts. One is for expenses that have been paid by our property management company and the other is one of ours that will be for any expenses written out of our checking account (mortgage, insurance, etc.). When I write a check, the corresponding account will be used based on if it's an expense incurred through our management company or an expense that we directly paid. While I have my deposited rents (sitting in the undeposited funds account right now), this is just the gross amounts that we received each month. The actual amount of the deposit we get each month from our management company will always be less since there are management fees and repair expenses each month. For example, say I have $1,600 I get for one property's monthly rent. I create an invoice for this property for $1,600, as well as make a deposit for $1,600 to show that the rent was received. I have to pay a 6 percent management fee to the property management company and an additional maintenance expense that's $50. The $96 and $50 expenses will be recorded as expenses through my checking account that I set up as my property management account. So the check I will receive from my management company will be $1,454. ($1,600 less $96 less $50). But my gross total of $1,600 is in my undeposited funds. I guess my question is how do I allocate the deposited rents?

MrsBryant8 · ‎November 29, 2022

Since you aren't writing a check for mgmt fees and their maintenance reimbursements, record these expenses in the deposit window as negatives. Fill in vendor name as mgmt company, the associated expense account, and amount. Deposits will not show up in Vendor Center's transaction list (QBDT) unless you go into the bank register and type the Mgmt Co's name in the name spot in the register list. Hit Record button at bottom to save. This is QB Desktop info.

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