Long-term viability of income properties depends on many factors, foremost of which is effective property management. Contrary to common misconception, property management is more than just collecting rent. There is a lot of complicated record keeping involved, maintenance issues, and many regulatory requirements that property managers must comply with. Errors or omissions, intentional or otherwise, may prove costly for owners and/or the property management company.
Mishandling of Financial Accounts
For property management companies the use of trust accounts to keep tenant security deposits and rent payments separate from all other funds is mandatory in most states. Some property managers misconstrue rent payments as non-trust items because operating expenses may be funded from rent collections. Additionally, security deposits belong to tenants unless all or part of it accrue to the landlord when certain lease terms are triggered.
Commingling of funds or an improperly designated trust account can lead to major headaches and stiff penalties. With so many transactions in a given month, it is very easy to make mistakes in record keeping that will throw off trust account totals. It is good practice to reconcile bank statements with ledger totals to obtain the adjusted cash balance each month. An overage or underage suggests an error in a recorded transaction that could take several hours to unravel. Property management software, such as Rentables, can greatly simplify the task of maintaining proper accounting records and minimize erroneous transactions.
Property management companies may engage in self-dealing, which is the practice of contracting services to personnel affiliated with the management company. This may not be illegal or unethical; however, your owners may question the price competitiveness of contractors you are affiliated with.
If you frequently use affiliated service providers be sure your owners understand the value, such as, expedited project completion or reduced rates due the volume of work your company refers. In many cases, affiliated contractors are pre-vetted and may end up reducing costs for the property owner. On the flipside, however, are affiliated contractors who deliver sub-par service with cost overruns and non-competitive rates. Property managers may let maintenance issues slide and accept shoddy work due to the affiliated relationship, potentially exposing property owners to penalties for non-compliance with local building codes or liability claims from tenants and third parties.
Although Rentables cannot prevent self-dealing or ensure reliable contractors are being hired, the software can help you track maintenance requests and provide owners with greater transparency. Using Rentables maintenance request tracking helps organize and quickly provides an overview of the status of each repair so you know which ones need attention. Once you enter a repair and the costs in Rentables, your owners can log into the Owners Portal to view the upcoming repair, helping improve transparency.
Not Requiring Tenants to Carry Renters Insurance
If you are self managing or hire a management company, it is important to require tenants to obtain renters insurance. Renters insurance provides most of the benefits of homeowners insurance excluding coverage for the dwelling and structure. Renters insurance provides liability insurance and covers the tenant's personal property and other covered occurrences, such as, theft, vandalism, and fire. The property owner is responsible for insuring the building, but is not responsible for the tenant's belongings.
It is a good idea for the lease to require that tenants have renters insurance generally covering loss of use of the rental property, personal belongings, and personal liability. Its inevitable when managing rental properties that "stuff happens". When a renter damages or has an accident on your property it can be a real problem. If your renter does not carry insurance it can be aggravating and expensive. To avoid these situations, property managers and owners should require residents to carry adequate insurance coverage.
Proactive Management for Long-term Viability
Without a doubt, property management is a complicated business given the record-keeping, juggling of multiple maintenance requests, and tracking of items required per leases. Leveraging available technologies to automate record keeping is beneficial to property managers and owners in numerous ways.
Rentables is a web-based property management platform that offers an efficient system of charging and recording rent, management fees, repairs, and more.
- Associated accounting entries are made automatically so that balance sheets and ledgers are as current as the last recorded transaction
- Seamlessly manage direct deposits from trust accounts to owner accounts along with preparation of statements
- Manage your contact list and lease life cycles for a comprehensive approach to property management
- User friendly interface with simple forms and intuitive features so that there is no steep learning curve
- Scalable solution whether you manage 3 properties or 300