Management One Property Management

Reconciling Bank Accounts –Best Practices for Keeping Compliant

By Cheri Thomas

 

Owning a Property Management company comes with great fiduciary responsibility. After all, you are responsible for someone else’s investment both in property and money. One way to make sure that you are protecting yourself and your landlords is by reconciling bank accounts each month.

 

It is required per Regulation 2831.2 that you reconcile your accounts monthly. ‘The balance of all separate beneficiary or transaction records maintained pursuant to the provisions of Section 2831.1 must be reconciled with the record of all trust funds received and disbursed required by Section 2831, at least once a month, except in those months when the bank account did not have any activities.

Reconciling Bank Accounts

Change Your Mindset

 

Every month we get our bank statements from the banking institution, and if you are anything like I use to be, you set it aside to deal with later.

Your mindset may be, “I am so busy, I don’t have the time to deal with this right now.”

The challenge with that is later becomes weeks, weeks become months, and then before you know it, a year has gone by and you have a pile of statements to deal with.

The thought of, “I will get to it later” turns into a headache because now you have 12 months of reconciling to complete. Not to mention, you really don’t know exactly what funds are in your bank account monthly.

I was not much of a math whiz or a numbers person; however, I do like to finalize things, and reconciling bank accounts must be done monthly to stay on top of your finances–especially when running a property management company.

Reconciling Bank Accounts

Start Reconciling Bank Accounts Today

Getting started is half the battle. Reconciling bank accounts is not my favorite thing to do; however, once it’s done and the balance I show in my account is the exact amount in the bank and it matches to the penny, well…that is a very good feeling.

To stay on top of reconciling bank accounts and to have a true handle on your money, it is the best practice to attack those bank statements once a month as you receive them. As boring as it is to sit down and check off each payment debit in your account and then check off each deposit made into the bank, the not so boring part is finishing with a zero difference from the bank statement to your account ledger.

Reconciling to the penny is a rewarding feeling. So, get a cup of coffee, put on some music and JUST DO IT!

Reconciling Bank Accounts

What if I my figures don’t match the banks?

This is where you now should put on your detective or investigator hat. You can think of it as a puzzle you have to solve or a riddle you will figure out. Whatever way you look at it, make it your mission to find the difference and reconcile with a zero difference. YOU CAN DO IT!

 

Confirm the total of debits the bank statement shows vs. your cleared debits from your ledger. If the amounts are off, then start with checking the debits in your account against the debits the bank statement shows one by one.

Yes, even your bank can make a mistake as it is a human in-putting the data and just maybe they hit the wrong key in error.

If it is an error on the bank side, you will want to contact them to credit and or debit your account so it will be corrected for the next month.  You will make an adjustment in your ledger in order to reconcile. If the difference is not in the debit side, then confirm each deposit you have in your ledger to the deposits showing on the bank statement.

 

Make sure you have some quite time to reconcile when no one will disturb you. Reframe from answering any calls during this time as dealing with numbers you have to be focused with no distractions.

Reconciling Bank Accounts

What if I decide I don’t want to reconcile monthly?

 

In the world of Real Estate, chances are at some point in time you will receive an audit from the Bureau of Real Estate. In California, the audits are conducted randomly. However, if you own a Property Management Company, you are at greater risk of receiving an audit every few years. It is required per Regulation 2831.2 that you reconcile your accounts monthly.

 

If you are found to be out of compliance you will be cited for non-compliance, you will most certainly face disciplinary action from the Bureau of Real Estate. These actions range from a warning to having your license restricted, revoked and fines can be incurred. It is simply not worth it to be out of compliance and risk your businesses future. All it takes is a little time and effort each month and with that being done you can have peace of mind.

Reconciling Bank Accounts

Management One License Operating Software (MOLOS) has a reconciling feature built into the software. This feature allows you to reconcile your trust accounts quickly and effortlessly. If you would like a FREE Demo of our Software, click here.

 

Related Articles:

What Are The Advantages Of Property Management Systems?

 

Advantages of a Residential Property Management Company In Your Real Estate Office

Property Management Systems Guide

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What Are The Advantages Of Property Management Systems?

  • Over the last 31 years here at Management One, I’ve been asked more times than I can count, “why are property management systems so important?”In property management, the shelf life of a Landlord client can be decades long as is the case here at Management One with many of our owners, compared to a Real Estate Sale where you list your house to sell and it’s 30-90 day process
    • Residents stay in properties for years and decades likewise, like here at Management One, 34% of residents stay with us for 10 years.
    • Our longest resident was 25 years, two and half decades in which they paid 85% of the owner’s mortgage off.

    Therefore, property management systems become essential in order to track all the maintenance repairs on a property, monthly and annual inspections of the property, lease renewals each year, owner modifications annually, and legal contracts. In addition, you must track all the specific wants and needs of each and every owner and residents if you are going to give great service to the owner and resident of the property and be compliant with all City, State, and Federal laws.

property management systems
  • Compliance With City, State, and Federal Agencies

     

    Fair Housing Laws are constantly changing every month. Such is the case with service animals. You can charge a pet deposit in most states, but if that pet is considered a service animal, you CANNOT charge a pet deposit. Why? Because it’s considered a service animal, not a pet.

    Having written systems in place to avoid lawsuits and huge fines at both the State and Federal level are critical to staying in business.

    Want more details? Click to get the facts from Fair Housing Direct

fheo350

Efficiency Is Necessary Due To Small Margins On Management Fees Charged

 

Most Residential Property Management companies charge from 7-10% of the monthly rent collected. Some companies charge a flat fee starting at $99.00 a month. Many property management companies will net–before taxes–about 28-40% a month on the management fee’s they collect.

 

You will normally see the larger the company becomes the less net % is earned. For example, on a 200-door company (a door meaning one house, one side of a duplex, etc.) a company can see this net even higher than 40%, but a company with 3,000 doors would be closer to the 28%.

Businesswoman writing performance concept.

To keep these margins, their overhead must stay very lean. And with labor being the number one cost, this is where efficiency comes into play.

 

The last quote at NARPM (National Association of Residential Property Managers) was about 60-70 doors per person, and some even as low as 48 doors per staff member where they were managing 1800 doors with 37 staff.

Here at Management One, we run 85-110 doors per staff member. The more experienced they are, the more doors they can manage by using our written and specific systems that are integrated with every division and every process of the company.

 

A low number of doors managed is mainly due to most property management companies either not having complete property management systems in all divisions or partial systems that aren’t integrated to the other divisions. Therefore, it takes more labor driving up cost and lowering the number of doors you can manage per staff member.

Consistency Is Crucial To Keeping Residents And Owners

 

Without written and specific property management systems, it’s impossible to have consist service for your customers in a property management business. When customers have inconsistent service, they go elsewhere. An example of great consistency is McDonald’s Hamburgers.

 

With McDonald’s, you know exactly what to expect in the hamburger you order, French fries and a chocolate shake. In fact, you can almost savor the taste thinking about it, can’t you? Now ask yourself, do you, and all those other people, go there because it’s the healthiest meal you could eat?

McDonalds

No, it’s because it’s consistently average, but it’s consistent. You know what to expect, and that makes you feel secure, comfortable, and something that you can count on; it’s a sure thing.

 

 

Property Management Systems allow you to have significantly less touch points, which cuts labor cost, reduces mistakes, and reduces customer complaints (as they know what to expect each and every time from every staff member).

 

In addition, your referral of new residents and new owners’ properties to manage will be higher because they trust you’ll be consistent in your delivery of service.

Notebook with Toolls and Notes about Workflow

Scalability Is Doable With Systems

 

Having written systems in place allows the property management to not only scale upon expansion but to do it at a reduced price. With time-tested systems, you know what to do, how to do it, you can do it with less effort and time, and you’ll know what it’s going to cost before you scale up.

 

As you grow from 100 doors to 200 doors and beyond, you’ll need to know the additional space, furnishings, technology and types of additional staff you will need. Your new staff may include an accounting person, maintenance inspector, leasing consultant, etc.

Experiencing hyper-growth without systems can greatly affect your company, and in many cases, by the time you get your arms around your growth, you’ve damaged many things:

  • Your company name
  • Your reputation on social media like Yelp, Google, etc and good luck trying to get that back, if you every do
  • Turnover of skilled staff as they become overwhelmed and quit
  • Lack of any kind of a life for yourself and seeing your family

 

Property Management Systems vs No Property Management Systems

’ve had a lot of experience with both in the 31 years I’ve owned Management One Property Management.   When you first open your property company, you don’t really see the benefits of systems because you only have a handful of accounts to manage.

 

You just handle it within your Real Estate office staff and the handyman you have now.  So, you feel pretty good about your decision, at least for the moment, not to invest in property management systems…

 

Let’s look a little deeper into the pros and cons of property management systems:

Pros Cons Buttons Show Positive Or Negative

Pros and Cons of Property Management Systems

 

Pros of Property Management Systems

 

  • Systems give you start-up assistance.
  • Systems enable you to grow much faster in an organized fashion.
  • You will find it reduces your cost to operate your company with efficiencies.
  • Companies that start with business systems have a 95% success rate, those that don’t have a 15% success rate.
  • You have on-going support, training, and coaching from the systems provider.
  • Systems allow you to ramp up your property management business much faster.
  • Systems will have you prepared if you experience hyper-growth.
  • Know about fees you should be charging on day one instead of 10 years later.
  • Systems eliminate costly mistakes.
  • You and your company will have leadership with your Systems provider on an ongoing basis as the marketing conditions change.

 

Cons of Property Management Systems

 

  • 90% of all startups fail. Mainly due to poor planning and management and limited marketing (according to Neil Patel, a Forbes Contributor).
  • You must make an investment. But in essence, you will make it anyway in loss of revenue due to inefficiencies in your property management company.
  • Lack of efficiencies in leasing, maintenance, accounting, marketing etc. etc.
  • Not charging ancillary fees you should be charging.
  • Lack of training, support, or coaching that you will need.
  • Increase in marketing cost since you would have to come up with all your own marketing material, Marketing strategies, etc.

 

Being a pioneer doesn’t pay. Let the other person do the pioneering; and then after they have shown what can be done, do it bigger and more quickly. But let the other man or woman take the time and risk.

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Advantages of a Residential Property Management Company In Your Real Estate Office

“Cash is King.” We’ve heard this in the financial world forever, but even more so in the Real Estate business and your Real Estate office where it can be very volatile with changing markets due to things Brokers/Agents can’t control. I experienced a 21 ½ % prime interest rate in 1982 and mortgage rates as high as 17 1/2%, to the prime interest rate of 4% in 2017 and mortgages rates at 3 1/2%.

Monthly consistent cash flow of even a small amount of $5,000 t0 $15,000 a month can go a long way in keeping the doors open and not losing a significant investment you’ve made in your Real Estate sales office when the market goes south.

Just 50 doors could provide you with $7,500-$10,000 a month in monthly cash flow. 50 doors can be attained just by the clients you service now and a few referrals in as little as 4-6 months.

Stacks of coins with the words CASH FLOW on top

In good times, the cash flow can be used to expand either your property management company, your Real Estate sales, purchase an investment property for yourself or just plain take a 3-week safari vacation.

1. Cash Flow Gives Your Entire Real Estate Office Stability

Consistent cash flow gives you something else that even I didn’t see, and that is great peace of mind and a sense of comfort. When you know all your bills are paid in your property management company, your Real Estate company, and your personal bills, a feeling of relief comes across you that’s hard to explain.

It gives you time to think since you’re not concerned about the bills and overhead. You can really spend time thinking and strategizing how to either build your Real Estate Company and sales or your Property Management Company and how to cut cost in both, thus boosting profits even more.

 2. You Can Use Some Of Your Real Estate Offices Current Facilities, Staff And Agents To Start

 

Your Real Estate office and agents are a built-in platform for you in a number of ways:

  • You can use one private office in 100 sq ft with two workstations that you’re probably using for storage now
  • Some of the office equipment you will need you may already have most of it
  • Your Real Estate Receptionist can answer the phones and customers walking in
  • If you yourself will not be heading up your property management company, you’ll most likely have an agent who does moderate in sales but has great people skills, who would be excellent in this role as a property manager
  • Some of your other Real Estate Agents can show properties for rent
  • You already have a Real Estate License which is adequate in most states
Businessman Discussing With Female Colleague

The number of staff that you need if you have property management systems is one staff member for every 75-125 doors (a door is one resident one property).

Agents starting out with limited or no property management experience usually begin closer to 75 doors. This person would do most everything, then at 75 doors, you would need to hire a second staff member.

Your property management systems would tell you what the second person needs to be, and exactly how the workload of the entire company is split between those two with a detailed job description that is already set out for you.

The resources you already have can greatly reduce your upfront investment. Your dusty storage room can be repurposed into a cash cow that pays you thousands monthly.

 3. Creates Listings At Zero Marketing Cost 

 

Who doesn’t like listings, especially at zero marketing cost? With great property management systems, your owners of the rental properties will receive exceptional customer service because “systems” create great consistency and trust.

So, when it’s time for them to sell, you will get 90% of the listings. Here at Management One, we do just that.

Couple shakes hands with realtor outside new house

Since the listing came in virtue of your new management company, your ROI is infinite. Think about it: If someone was to refer you 25 listings a year, and you paid them no referral fee, how would that change your bottom-line for the year in your Real Estate office.

With just 300 doors you will have hundreds of investors of the other properties you’re managing. Many times, you will have another investor client buy the property you just listed. The investor gets a property that is rent ready with a resident who is paying rent and ends up with no vacancy or repair cost.

You receive a commission on the listing side, the sale side, you keep the management of the property, and your management fees keep coming in. In addition, it’s a simple transaction since you control all facets of the sale and escrow.

Depending on your market you can earn a commission of just $6,000 – $10,000 on each listing that is $150,000 – $250,000 a year since the management company keeps producing new listings every year.

So, your property management company becomes another marketing tool for listings for your Real Estate office.

 4. You Get First Option To Buy Properties

By owning the property management company, you will know first when they are ready to sell, giving you the first option to buy it for your own Real Estate Portfolio.

Here are the advantages:

  • You know the maintenance track record of the property
  • You know what the neighborhood is like and what the appreciation % has been every year on the property
  • If the owner is having trouble making the mortgage payment, you’ll already know, as your residents would have gotten postings on their door
  • You will know if the property is located in a growing part of the city that will continue to increase in price or not
  • You know the track record of the resident paying and taking care of the property
  • And the property is already rented so you get to rent the day escrow closes
Real estate concept

This allows you to build your Real Estate Investment very quickly. If there are properties you determine you don’t want to buy, you can list and sell them.

 5. Creates Buyers At Zero Marketing Cost

Residents who give a 30-day notice to vacate the property, or residents who do not renew their one-year lease, indicate they may be looking to buy.  This is another opportunity to create commissions at zero marketing cost in obtaining a new buyer.

One option is they could possibly buy the property they are living in, in which case you would get the listing and the sales commission if the owner was going to sell anyways.

Buy or rent real estate property concept

Option two is you find them another property on the open market. This also allows you time to find a new resident for your owner’s property they are moving out of and reduces their cost of vacancy since you can start re-renting it during the process of you finding the current resident a property buy. So, it’s a WIN for your current Owner, WIN for your current resident you’re selling a home too, and a BIG WIN for you as you get a commission and keep the management at zero marketing cost.

 6. Creates An Asset You Can Sell

With a Property Management Company, you have a cash flow asset that you can sell on the open property management market of some 84,000 companies nationwide.

You can also use it as an enhancement to sell your entire Real Estate office. Selling just a Real Estate office on its own can vary due to the branding that you’ve created–especially if you’re not a Real Estate Franchise and sometimes might not be able to sell it at all.

First, I want to discuss what you can expect to receive if you’re just selling the Property Management Company. To begin, the pricing of a Property Management company today can vary from 1- 2 ½ times gross annual earnings.

security deposit

If we take the average of 1.75 for a company that is grossing $700,000 a year in management fees and other ancillary fees times a factor of 1.75, that would give a selling price of 1.2 million. There are many variables that make up this valuation, and this evaluation can vary from company to company and State to State.

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Banks LOVE to Loan Money to Purchase a Property Management Company

A very big plus you have in selling a Property Management Company is banks love to loan on them. Think about anytime you’ve gone to the bank for a loan, the Bank always asked what your form of repayment is, right?

When you can show the Banker a track record of your rent role and verify it with your tax returns, Banks open their arms for your buyer. So, your new buyer would have no problem getting a loan; therefore, your Property Management Company becomes a very marketable asset.

If you were wanting to sell your Real Estate office operations and your Property Management company together as one package, it’s easy to see the advantages of having a Property Management company in the mix.

In this scenario, the buyer would be getting $700,000 a year / $58,000 a month in gross management fees on a 300-door company.

In addition, the buyer is getting the possibility of 300 future listings as all the owners will eventually sell.  Being conservative, if they only received 50% of the listings at a commission of $10,000 for each listing, that equates to $1,500,000 in commissions over the future years.

So, where it might have been a tough sell to sell your singular Real Estate company on its own, now it’s not.

 

 

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Software and Systems for Residential Property Management: A cost breakdown

By Ron Sudman

 

Every day people ask me, “How much should I budget for residential property management software/systems? “and that is just too broad of a question.  A Fiat isn’t going to cost you much….. but that Tesla is going to be a touch more expensive.

So, in order to make sure you get the right software and systems for your residential property management company at the right price we first need to distinguish between the two.

 

What Are The Differences Between Property Management Software and Property Management Systems?

Many people think they are somewhat the same, but they are quite different.

Most property management companies purchase a property management software first thinking that will be the silver bullet to run their operations only to find out that property management software is just software, not “SYSTEMS”. You need both to have a successful operation.

Property Management Software:

The software processes rents, maintenance work orders, and manages a property management company’s operations, etc.

  1. The software also produces reports for owners, residents, and the property management company. In addition, it produces online communications with Owners and Residents giving them their own portal.
  2. Accessibility and Mobility: It provides the retrieval of data with almost any technology deviceProperty Management Software
  3. Data Security: It protects data and allows you to recover that data if needed in a cloud base software especially.
  4. Marketing: It allows a property management company to do online property marketing at ease exposing properties for rent worldwide on all search engines.
  5. Scalability: Whether your company is managing one or a thousand properties it allows you to accomplish core functions with the flexibility that’s affordable.

The average cost of a property management software is $1.00 a door or $200 per month whichever is greater. There are software applications out there that you can get started for as little as $45 a month but you will have limited modules and options.

Most software’s have on boarding fees (this is a setup fee) that can range from $400 to $1000 or more.

If you have data to move over to the new software there can be an additional charge for that as well and prices vary.

There are 7-8 top property management software providers and the pricing is pretty consistent with all of them with come variable. Most have the same modules in accounting, maintenance, leasing, marketing, administrative, reporting, forms, letters, legal contracts. However, it’s important to note that the final cost will vary depending on a variety of factors and variables:

    • Ease of use of the software
    • Ramp up time

Training or lack thereof

  • Support
  • Customer service

These could add up to more than the software itself as the time you’re paying your staff to get ramped up and use the software day in and day out could be considerable and that’s an ongoing cost.

Property Management Systems:

A System is a group of related parts that move or work together. A set of detailed methods, procedures, and routines created to carry out a specific activity or workflow to complete a task.Property Management Software

An example of a maintenance repair. A Resident calls in a repair and here is an initial part of the SYSTEM for processing a maintenance repair. It would need these components before you ever get to the software:

  • What questions does the property management representative ask the resident?
  • What detail questions does the representative ask them to see if it’s an emergency or just a normal repair
  • What answers does the representative give the resident on questions they have on how to handle the situation with the repair.
  • What is the verbiage they use to get to the root of the repair?
  • What is the process for selecting the right vendor to do the repair?
  • What options can the representative give to the Resident if they have to be out of the property for a few days
  • When will the repair be scheduled?
  • Who will set the appointment with the Resident the vendor or the management company?

 

Once these questions are answered then you can enter the information into the software but only then. This is one initial step of a “SYSTEM” in processing a work order for a repair.

Much like McDonald’s while they have software to manage their operations, they have systems on how to cook a hamburger, for how long to cook it if you want it rare, medium or well done and exactly what goes on the hamburger bun first, second, etc and how it’s wrapped. This is what is considered a “SYSTEM”

Providers of property management systems vary greatly from a simple one manual on processes to full systems in every part of a property management company from accounting to leasing to maintenance, operations, hiring, etc. Much like you will see with a franchise.

The cost of property management systems can vary greatly as this is very new to the property management industry. But to give you some idea you can buy a maintenance system for $499.00. This just gives you a system for maintenance, for example, nothing else. While this will help, you be more efficient in maintenance it will not help in your overall operations.

If you purchase a complete property management system it could be $15,000 but this will give you all the property management systems you need to run your property management company much like if you purchased a franchise for example, but far less than a franchise.

Some systems do come with ongoing support which can range from $100 to $500 a month for a limited time to teach you how to use the systems, training, support and coaching so you can get the most out of the systems. Also, your ramp up time is far less since you can move much quicker in getting ramped up.

Systems will allow you to reduce cost in managing the same number of properties with less staff, reduces making costly mistakes and allows you to scale up quickly enabling you to grow faster which increases your revenue significantly.

Why Are Property Management Systems So Important?

People love to know they can count on something, that makes them feel secure since they know what the outcome will be. Using McDonald’s as an example their food tastes the same in New York, LA, Hong Kong or Australia. Why? Because of the systems.

When people know, they can count on something they keep coming back just like you and your kids may have for 40 years to McDonald’s and that creates brand loyalty.

But it’s even better than that. Systems retain customers, increases revenue and reduce marketing cost for a property management company and in some cases, reduces it all together so this is what “SYSTEMS” can do for a property management company.

At the NARPM National Associations Realtors Property Management conventions the number one topic has been Systems. In order to grow, have scalability and maintain quality customer service, systems are essential.

There are 3 options:

  1. If you’re a current property management company you can just buy a property management software and change your operations to match the software since the software company will not change their program to adapt to your operations.
  2. You can just buy a property management system and match your software to the systems as closely as you can. This works better than option one
  3. You can buy a property management system and software that’s integrated together and works as one. This works the best as they are fully integrated which creates high efficiency and reduces cost and simplifies all the systems.

Most property management companies end up with number one most of the time, but not by choice it’s really not the most efficient as you’re changing your operations to match a software. Your software should manage your operations.

New property management companies just starting out would benefit well in considering option 3. With that said current management companies would benefit greatly from an option 3 in the long term.

Aside From Cost for Residential Property Management Software and Systems

While cost will always be a factor, it should not be the only reason for selecting one plastic surgeon or practice over another. There are a variety of other elements to consider when making your decision:

  • Systems provider experience
  • Software provider experience
  • Ratings and reviews
  • What you feel most comfortable withProperty Management Software

So, there you have it our prices for our residential property management systems and software. It’s important to remember that based on your timing these prices could be less, making the cost you pay out of pocket much less.

If you have any further questions about our prices or the details of our systems and software, feel free to contact us by clicking the link below or call us at 949-721-6695.

 

Schedule a free online consultation to find out more about your Property Management Systems and Software options, contact Management One at 949-721-6695 today or e-mail support@mgtone.com. During your online consultation, you will have the chance to discuss your options with one of our seasoned property management executives to better understand the factors that will influence the cost of a property management systems and software.

Property Management Systems Guide

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