Cyan Zhong 
Accounting can be a daunting task for any property management operation. If you lack the time and resources to dedicate to proper bookkeeping, your potential for errors can have a serious impact on profitability.
Taylor Hou, Founder & Chief Happiness Officer of APM Help, a property management accounting consultancy, shares the top 3 common accounting challenges faced by property managers and provides tips on how to overcome them.
Challenge 1: Reconciling Books Regularly
To have accurate financials you need to reconcile to a bank statement, which means comparing your bank statement with your transaction records to spot any discrepancies.
Doing the bank reconciliation (or bank recs) is not a hard task in itself — the challenge lies in doing it frequently and consistently. Restaurants will close and reconcile books every night, but this is not the norm in the property management industry. Oftentimes property managers are not doing this very first step, Taylor said.
In every small business there are umpteen things to get done, and reconciling bank accounts is likely the last thing on your mind if you’re a busy property manager. But the consequence of not doing it can be dire.
“If you’re not keeping up with every single transaction that’s happening, you’re going to fall behind,” Taylor said. “And if you’re behind, most people either forget or don’t actually know how to catch up.”
If you fall behind, you risk making errors in financial reporting and potentially mismanaging client funds. This could lead to lawsuits and damaged reputations. Additionally, not reconciling bank statements regularly could result in missed payments, bounced checks, and other financial issues that could impact the overall financial health of the properties under your management.
Challenge 2: Juggling Multiple Bank Accounts
Third-party property managers handle owners’ money and renters’ money in two separate bank accounts. When you receive a check from a renter for rent and security deposit payments, you would deposit the whole check into one account, then transfer the rent or deposit amount into the other. Sounds simple, right?
With many renters paying at different times, the risk of making a mistake or forgetting to transfer the funds is high. Your property management system will prompt you to distribute the money in the rent account to your owners at some point, which means you could accidentally send a portion of your renters’ security deposits to owners, resulting in noncompliance.
A worst-case scenario: a renter has a maintenance issue, but their landlord’s cash reserve ran out. Instead of asking the landlord for more money, some property managers might be tempted to draw from the security deposit account to fix it, and expect to pay it back when the next month’s rent comes in. Unfortunately, nine out of 10 times it will result in negative balances for the property manager, Taylor said.
“This is highly illegal, because essentially you’ve now borrowed, or stolen, from the security deposit account when you should not have,” Taylor said. “That is one of the absolute worst things that happen on a daily basis in property management.”
Challenge 3: Refunding Security Deposits
Security deposit refund regulations vary by state and can change frequently, adding complexity to property management accounting. Many states require security deposits to be returned within 30 days of move-out, and some even as short as 14 days.
When a resident moves out, there are many steps property managers need to go through, from inspecting the property, recording any damages to coordinating with contractors and getting a quote for the deduction. If you don’t have in-house maintenance technicians, it will be difficult to refund deposit checks in time.
For late refunds that are pursued in a court of law, the stakes are clearly high and net operating income (NOI) can be materially impacted. In Connecticut for example, property managers have 30 days to refund a renter’s security deposit after they move out (or within 15 days of receiving their forwarding address). If the deposit isn’t refunded with interest or a written explanation of deductions, you may have to pay the renter double the amount of the deposit. Similar penalties exist in many states.
On top of that, many property managers are still sending paper checks to renters, causing additional overhead. If the check gets lost or returned, you’ll need to issue a stop payment and reissue the check, usually at a cost of $20 per check. If the renter takes too long to cash the check, you have the liability of an uncleared check in your books.
“There are lots of accounting challenges when it comes to security deposits, lots of compliance to think about. If you’re not paying attention, you can absolutely dig yourself a massive hole,” Taylor said. “I think that’s why ultimately people love Obligo, because you take all those headaches away.”
3 Tips to Overcome These Challenges
1. Go deposit-free
Many of the accounting challenges in property management can be solved by going deposit-free. Deposit-free properties are quicker to lease, easier to manage, and more attractive to residents. It frees up cash that would otherwise be tied up for renters, and unburdens landlords from the hassle of managing deposits.
Obligo’s deposit-free solution will streamline your property management operations and save you valuable time from manual tasks. No more worrying about missing deposits, wrong balances or refund deadlines — now you can use that time to focus on attracting new renters, providing great customer service and fostering a positive resident experience.
2. Do your bank recs regularly
To avoid gaps in accounting and allow for enough time to fix them, Taylor advises property managers to do their bank recs daily when possible. Most U.S. states only require property managers to reconcile their bank statements monthly, as the official bank statement is on a monthly cycle. But typically, the bank statement comes out during rent week, the busiest week for property managers.
“So realistically you’re not going to touch the bank rec until maybe the second week of the following month,” Taylor said. “Say there was a missing deposit in the first week of March, but you’re only getting around to it the second week of April. That’s 40 days late — much worse than 3 days late, which is the worst case if you do your bank recs daily.”
3. Become highly proficient with your PMS
Getting highly proficient at using your property management software has a great impact on improving your accounting efficiency. Most property managers keep all their resident records and ledgers in their PMS, so it’s important to spend time learning how the system works. You can get training from the PMS directly, or work with an expert like APM Help if you have a custom setup.
“These property management softwares are very user-friendly, but you need to take that initial step of learning,” Taylor said. “If this is your business and your livelihood, I would hope you actually spend however long you need to learn the software that’s running your business.”
Ready to learn more about Obligo’s deposit-free solution? Download our case study that shows how Obligo helps property managers streamline operations and stay compliant.
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