Property management accounting is a specialized branch of accounting that deals specifically with the financial management of rental properties. Property management accounting includes tracking rental income, managing expenses, handling tenant deposits, and producing financial reports. It helps property managers maintain accurate and comprehensive financial records for each property they manage.
In today's complex real estate landscape, managing single-family rental properties can be a daunting task, especially when it comes to accounting and finance management.
Understanding property management accounting, as well as the best property management accounting software to support it, can make this task significantly easier.
In this article, we're talking to a property management accounting expert. We’ll delve into the best property management accounting software available in 2023, and we’ll help you choose the right software that fits your property management needs. We'll also address frequently asked questions about property management accounting software, including aspects like ease of use, integrations, pricing, and support.
In general, property management accounting software serves to alleviate the time and effort that might be required to manage finances manually. It can also help plan for expenses, foresee any cash flow issues, and make better-informed financial issues. And perhaps most importantly, it helps property managers stay in compliance with requirements around tax calculations and reporting.
Note that there are two key components of property management accounting: corporate and trust accounting.
Corporate accounting involves the financial transactions and record keeping of the property management company itself and is generally the same kind of accounting you’d do with any business or corporation. This might include the company's operational expenses, income, taxes, payroll, etc.
Trust accounting, on the other hand, is unique. It concerns the financial management of clients' funds held by the property management company. This can include tenant rents, security deposits, and funds reserved for property maintenance or repairs. It's crucial to keep these funds separate and accurately tracked to comply with legal requirements and maintain transparency with property owners.
Because of the unique nature of bookkeeping with trust accounting – and its relevance for property managers – we’re mostly focusing today on trust accounting, or software that can manage both corporate and trust accounting.
So, whether you're new to property management or an experienced professional looking to upgrade your software, this article has something for everyone. Let's get started!
Meet the Expert: Kristin Johnson, Founder & CEO of TripleTie
Kristin Johnson founded and leads the property management accounting solution TripleTie, which is designed to help property management companies manage and conduct accurate trust accounting.
Related: Best Single Family Property Management Software
Let’s go over some of the best property management accounting software solutions in 2023. After that, we’ll also share an extensive FAQ that we had with Johnson about the ins and outs of property management accounting.
Before diving into our list, we asked Johnson what good property management software should include.
“Having the ability to work within one system is huge,” she says. “Rather than having to parse out, for example, I do my screening over here, and I do my maintenance over here. Instead, you have it all integrated and built-in, and the system talks well with itself. You’re not having to import and export so much data. That’s crucial.”
She gives an example of a time when she was using a platform that didn’t have that capability.
“When we were working in New Mexico, we had to charge sales tax on services. So our management fees, our RBP, all of those things had to have sales tax added onto them. Our software at the time didn't have a function built where I could say, ‘This item is taxable, and this is the tax rate.’ I had to manually create recurring bills on every single one of those fees. And then, every year, when the state updated the sales tax rate, I had to go and update thousands of recurring bills. It was a nightmare!”
So, as we go through the list, keep in mind that different software has various degrees of customization, open APIs, etc. Cost is a big consideration, but looking for an all-in-one is also important.
Johnson’s top recommendation for accounting software is Rentvine.
“Rentvine is really dialed in on trust accounting,” Johnson says. “There’s no need for a lot of the workarounds that we see in some of the other trust accounting providers. At its core, it’s a true trust accounting platform, and then the beauty and usability are built on top of that piece.”
Rentvine is deeply customizable for property management tools and needs, with the ability to build your unique owner statements, custom management fees, custom late fees, etc.
“The other thing I love about Rentvine is that it does have an open API,” Johnson says. “So if you did want to integrate with an external maintenance company, for example, you can get a seamless integration through the API.”
Pros:
Cons:
AppFolio is an extremely popular property management platform that works well for both residential and commercial property management. It has a modern and intuitive interface but can be pricey with add-ons and complex to use.
What we like about AppFolio is the reporting ability, property management automation (late fees, smart bill entry, etc.), utility management features, etc. The drawbacks include the price and, as Johnson points out, it’s not as customizable as she would want for an accounting piece.
“It is not a super strong accounting platform and does require a lot of workarounds,” Johnson says.
However, if you’re willing to use a few workarounds and you like AppFolio for the other key features, it does have a solid accounting platform.
Pros:
Cons:
Buildium is a comprehensive property management software designed to simplify all facets of property management, including robust accounting features. It provides seamless handling of all property-related transactions, from tracking rent payments and vendor bills to handling maintenance costs and fees. The software also supports both corporate and trust accounting, ensuring legal compliance and transparency.
Pros:
Cons:
Yardi Breeze is a cloud-based property management software ideal for smaller-scale PMCs. The platform offers a robust suite of tools, including strong property management accounting capabilities.
Pros:
Cons:
Hemlane is a cloud-based property management solution designed for small to midsize businesses, with a focus on facilitating the relationship between property owners and managers, residents, and service professionals.
Pros:
Cons:
TenantCloud is a cloud-based property management software solution suitable for landlords and property managers of all sizes. It offers a wide array of features, including a dedicated accounting module.
Pros:
Cons:
Rent Manager is a versatile property management software solution that provides a wealth of features tailored to property managers, including accounting.
Pros:
Cons:
Propertyware is a cloud-based, end-to-end property management software that offers a range of features, including a strong accounting suite. They offer custom fields and automation for PMs, real estate investors, and residents.
Pros:
Cons:
Rentec Direct is a web-based property management software designed for “landlords” and property managers, offering a wide variety of features, including an extensive accounting system.
Pros:
Cons:
DoorLoop is a property management software designed to streamline the management process for property managers with all sizes of portfolios. It comes with a robust accounting suite, among other features.
Pros:
Cons:
The list above is not intended to be exhaustive, but we did want to make a brief mention of a few other software applications for property managers that incorporate some accounting features:
Tagline: “The operating system built to help you focus on residents, not technology.”
While this article focuses on software tailored to property management accounting, it's worth mentioning general accounting solutions like QuickBooks online.
QuickBooks, a well-known accounting software, is versatile and can be effectively used in a variety of industries, including the real estate business. It offers robust features like tracking income and expenses, invoicing, and generating detailed financial reports.
However, because it's not specifically designed for property management, it may lack specialized features like tenant and lease tracking or lease management, maintenance requests, or property-specific reporting. That's why it didn't make our main list, but for some property managers, especially those managing a small number of units, it might serve their needs adequately.
At Second Nature, we’ve been in the SFR property management space for a long time. We gathered up some of the most burning questions property managers ask about property management accounting.
Kristin Johnson helped us answer them.
Kristin Johnson: The type of account property managers need is a true trust account – which very few banks actually offer. Many local banks or even big ones like Chase and Wells Fargo will give you a checking account and then label it a trust account. That is NOT a trust account.
In normal bank accounts, you have $250K of FDIC insurance. A trust account has FDIC insurance per owner that has funds in the account. So they each have $250K of FDIC insurance. The only bank that I’m positive offers true trust accounts is Enterprise.
Kristin Johnson: If a tenant pays early, it's considered prepaid rent. It needs to stay booked as prepaid rent until it gets actually booked against the rent charge, and only then should the funds be made available to the owner.
I know that some property managers use it to pay bills. But technically, it’s a liability until it's actually earned, so it should not be used to pay bills, and it should not be distributed to the owner. Those are funds that belong to the renters until there's an actual rent charge booked against them. That's piece number one to understand.
Then, getting to the end-of-year side of it, the IRS does lay out that prepaid rent is taxable in the year that it is collected. So it should be reported as part of the 1099 income.
Kristin Johnson: The clearing account really serves as an intermediary while the security deposit funds are essentially in transit.
When we're getting ready to move out a tenant, those funds get released from the holding account, and it goes into the clearing account where we are booking, say, cleaning against it or whatever move-out charges need to go against it before we do a final distribution to the tenant. So it's just kind of a quick intermediary place where it sits very temporarily before the security deposit gets released and then distributed.
Kristin Johnson: Well, it depends on the function of the sales tax. There are a couple of different instances where sales tax comes into place. For example, New Mexico is a sales-tax-on-services state. Everybody is responsible for sales tax, meaning if it's a management fee, the owner is responsible for the sales tax. If it's a tenant fee, the tenant is responsible for paying the sales tax. Ultimately, the PM is responsible for gathering that sales tax and remitting it to the state.
There are some states where rent is taxable. Similarly, in those states, the owner is ultimately responsible for the sales tax. But many times, the PM will collect the sales tax from the tenant and pay it to the state on the owner's behalf.
A lot of times, what we'll see is, for example, the rent may be a thousand dollars, and the state says we need 7% of that. So you would tack an additional 7% onto the rent. The tenant would pay the thousand dollars plus the 7%, which would come into a liability or holding account on the ledger. Then a lot of times, the PM would pay that to the state on behalf of the owner.
Kristin Johnson: “Money in should be accounted for immediately as received. States will usually dictate how quickly receipts have to be deposited, but our recommendation is that they always get deposited same day with the bank or as soon as practical thereafter.
As far as record-keeping to the owner goes, most states actually mandate that at least monthly reporting happens to the owner.
Certainly, in trust accounting, record keeping should be looked at daily, weekly, and monthly to make sure that it's staying in line. Soft reconciliation should be happening at least weekly, if not daily, to ensure that all of the money is fully accounted for and that you're not going to have any issues when you're closing out the end of the month.
Kristin Johnson: Classes could be done by various categorizations: single family, multifamily, commercial – in other words, the type of property that you're managing if you wanted to keep records that way.
We always used classes in our company because we were in seven markets, and so we would use classes per market. If I wanted to track my Farmington location or my Denver location, or my Charlotte location, I had all of my income and expenses broken down in classes by location.
It could be location, it could be property class type, really whatever kind of granular level you want to dive down and break out could be done by classes.
Kristin Johnson: If you're working in a true property management software, owners will be set up as owners, and you would do owner distributions to them as owners.
It's possible that if someone's not using a trust accounting platform – if they're using something like QuickBooks – then probably yes, you would have them set up as vendors.
But if you're managing a true trust accounting software, I don't ever recommend setting up owners as vendors. It kind of convolutes end-of-year reporting. You have to issue 1099s to your owners, and you have to issue 1099s to vendors. If you have them set up both as an owner and as a vendor, you're theoretically sending out two different 1099s – which wouldn’t necessarily be proper.
Kristin Johnson: Accounting is one thing in property management that you don't want to skimp on. The most important function of a property manager is to be a good steward of other people's money.
I don't know that there's a range, but I will say that it very well may end up being your largest expense. But worth the money.
The software you choose for property management accounting can significantly streamline your operations and contribute to the growth and success of your business. Each option has its strengths and potential drawbacks, so it's vital to select a solution that fits your unique needs and portfolio size.
By equipping yourself with the right tools, you can streamline your accounting processes, ensure accuracy and compliance, and ultimately, drive your property management business toward greater success.
If you want to get more input on your property management software, check out our Triple Win PM Community on Facebook. Or, see more of our studies on property management best practices and services like our Resident Benefits Package.