Bookkeeping for Small Property Owners
- Details
- Category: Latest News
- By:
-
Carl Kettler
CSA and RPBG Director
Bookkeeping and accounting is an important task for any business. Property management is a vertical market served by numerous computer software vendors to make the task of tracking income, expenses, security deposits and depreciation easier. This article is not intended to be a comprehensive review of options, but rather to give a high level view of how a smaller landlord might choose the best option for their needs.
As a degreed accountant, a computer professional for over 25 years and the owner-operator of a service business for 11 years, I have seen several approaches to accounting and bookkeeping. Approaches from green bar tabular pads to computer spreadsheets, personal computer general ledger software and dedicated property management applications all the way up to computer mainframe based GL systems tracking billions of dollars. Even keeping my own books up to date, I often envision Bob Cratchit working late into the night to keep the journals current for Scrooge.
This article is not intended to be a comprehensive review of options, but rather to give a high level view of how a smaller landlord might choose the best option for their needs.
My computer background motivates me to look at a problem to minimize the human work that needs to be done. Whether employing a staff person or outsourcing a task, involving a human process can impact accuracy, timeliness and consistency. Yet, I know all too well how many different vendors I may interact with in the course of a year. Whether automating QuickBooks or training a bookkeeper, a user has to know (and remember) what expense category an expense gets charged to.
What choices are there for a small landlord? A Google search on "rental bookkeeping software" turns up over 4 million results. "Apartment management software" returns over 74 million. A casual conversation with a few RPBG members is likely to yield almost as many answers as people you ask. Here is a sample comparison of tools you might consider:
Server based GL systems like Microsoft Dynamics are infinitely flexible, but at a very high cost. The purchase price is just the beginning. But to the property investment and management company with a portfolio of buildings and separate investment entities, it might be the right solution to provide infinite flexibility in reporting and integration.
What choices are there for a small landlord? A casual conversation with a few RPBG members is likely to yield almost as many answers as people you ask.
QuickBooks is the market leader for small business accounting, but having used QuickBooks in all its variations for almost 35 years, I could write a small book about all its challenges. Dedicated vertical applications like Yardi and AppFolio focus largely on the tenant aspects. Very valuable for managing a large number of tenants, potentially in different buildings, but product minimum pricing and the learning curve, in my opinion, put these out of reach for the small landlord with only a few units. (Note: I was a reseller for the original version of Yardi in 1983 that shipped on 5 ¼" floppy disks to run on the IBM PC.)
Zillow and Apartments.com are popular web sites to list vacancies, and they offer an easy way for a small landlord to get paid by ACH or credit card. I moved my ACH paying tenants to Apartments.com as of April 2021 and will be evaluating how well it works for me.
Over my years of managing my building, I have also considered the ease of sharing information whether with an outsourced bookkeeper or a tax preparer. My chart of accounts is my own and most tax preparers I've worked with prefer me to simply send a spreadsheet.
What criteria should the small landlord use? As Louis Sullivan was famous for saying, "Form should follow Function." For me, with relatively low turnover, I want a quick and easy way to generate the numbers for my tax return. I also want to monitor the basics of my P&L, and I use the balance sheet as a check that everything has been recorded and my lender asks me for a copy of the balance sheet every year. From my accounting background, I also use the Statement of Cash Flows frequently to forecast and to plan improvements and larger maintenance projects.
Over my years of managing my building, I have also considered the ease of sharing information whether with an outsourced bookkeeper or a tax preparer. In spite of how easy it should be for a tax preparer to use my QuickBooks data directly, my chart of accounts is my own and most tax preparers I've worked with prefer me to simply send a spreadsheet.
To anyone who has studied accounting, co-mingling is a bad idea. For me, it is just one more lesson learned the hard way to keep entities separate.
That brings me to a newer option which I've included in the table. TillerHQ is a very basic tool for tracking finances in a Google Spreadsheet. Although it does not offer all the features of a full blown GL or property management application, it does import all my banking transactions automatically and provides a very robust auto-category tool. Since moving my billing and ACH collection off QuickBooks, I have less need for the additional features of QuickBooks. Because TillerHQ is an interface to a spreadsheet, and because Google provides very robust tools for programmers, TillerHQ presents a very appealing alternative to a GL system.
One additional note from my experience. When I became a landlord, I already tracked my personal finances using a computer. I expanded my chart of accounts so that I could run reports on my building as part of my comingled finances. Part of my motivation for this was that I wanted the ability to generate roll-up reports of my entire finances, including the rental property. I finally broke out my building as a completely separate entity a few years ago. Although I now have to combine a couple of spreadsheets to produce a complete Personal Financial Statement, it has made many aspects of the bookkeeping for the building easier. To anyone who has studied accounting, co-mingling is a bad idea. For me, it is just one more lesson learned the hard way to keep entities separate.
Carl Kettler currently provides computer and business consulting to small and medium sized businesses. He enjoys finding ways to leverage technology to automate tasks and processes and providing financial analysis and forecasting services. You can find out more about Carl and his projects at his web site: https://www.brightsparktech.info
