QuickBooks Online Advanced for real estate property management, Part 2: Entering transactions
QuickBooks® Online Advanced is Intuit’s latest cloud-based offering designed for fast-growing, complex businesses, allowing my clients to grow and remain in the QuickBooks Online world. I love this because it means I don’t have to go out and learn a new accounting product when my customers start to expand.
This article is is Part 2 of a 3-part series that describes how to use QuickBooks Online Advanced for real estate property management. Part 1 is an overview of Advanced and who it’s for, plus details about how to get set up to work with these kinds of companies. When part 3 is published, the URL will be included below:
Prefer videos to articles? I cover all three parts of this series in this video.
Editor’s note: Find out more about Seth David’s course, QuickBooks Online Advanced for Property Management.
Entering transactions for property management in QuickBooks Online Advanced
In this article, we’re going to look at the following areas:
- Custom fields
- Moving in – new tenants
- Tracking expenses assigned to units
- Moving out
We’ll want to set up three custom fields to start:
- Move in date
- Monthly rent amount
- Security deposit
There are two general types of custom fields you can set up; Customer Info and Transaction Info. The format of each field should be straightforward. We have a “Type” for Date and Amount. You have other types as well. Think about how a drop-down list might be useful. The monthly rent amount and security deposit will seem redundant because they will be in the transactions themselves. The purpose of these custom fields is for reporting.
Moving in – new tenants
The first three months are critical. In month 1, you will charge the new tenant a full month’s rent plus security deposit. In month 2, you prorate the rent based on when they moved in during the prior month. In month 3, you charge just a full month’s rent. Then, that invoice can be memorized to post each month on the first for the next nine months.
Month 1 invoice – full month’s rent plus security deposit
Month 2 invoice – prorated rent
Month 3 invoice – full month’s rent
Memorize the invoice for the next nine months
Once you get this all set up (and you can set it all up on day 1, and post date it) then you are off and running. The process is basically automated.
Tracking Expenses for Your Units
If you’ve set up your customer list as described above, then assigning expenses to your units is as simple as choosing them in the drop down when you record them.
The only issue here is that when a tenant moves out and you make that sub-customer inactive, any maintenance costs associated with that unit go with that inactive unit. What I suggest, if that is a concern, is another customer sub-set just for maintenance. Then, assign all maintenance expenses to those versions of the units. These will never be made inactive.
Most property managers are paid a percentage of rents collected. I’ve seen that range from 7-10 percent, depending on how much responsibility the property management company takes on. In this example, we’re going to assume the property management company is keeping their own books in the same company with the properties being managed. Also we’ll call it 10 percent just to keep the math simple.
Every time I see those words, I can hear Billy Joel in my head! When a tenant moves out, they are supposed to pay the last month’s rent in full. In practice, many do not, so you keep the full security deposit. The problem with enforcing this is the eviction process will take longer than it will take the tenant to move out. This is why it is a good idea to collect two month’s rent as a security deposit.
Once you do the walk through, determine how much, if any, of the security deposit you will need to keep. Normally, their last month is due in full. The lease is for an entire month’s rent. They don’t get to leave in the middle of a month and ask you to prorate the rent. When you have calculated the security deposit withholding, it’s time to create the payment in QuickBooks Online Advanced.
This can be a bit tricky. Of course the payment will be for the net amount, but you have to zero out the entire security deposit. The payment is split in the following scenario. Let’s say Matthew Fulton is moving out. His original security deposit was $2,400. Let’s say he never paid his last month’s rent? We withhold $1,200 to capture that rent. Assuming we’re holding back $600 for repairs, the net check would be for $600.00 recorded as follows:
- Security deposits payable $2,400.00 (this zero’s out the entire security deposit).
- Security deposits withheld – $600.00.
- Rent withholding -$1,200.00.
Your payment total will net to the correct $600, which is what will be drawn from your security deposit bank account.
Once your tenant’s security deposit and any rent balance is zeroed out, you can make that sub-customer inactive. Then, create a new sub-customer for that unit and call it “vacant.” This last step is important so you can see clearly how many vacancies you have.
As a property manager, one good measure of your effectiveness is keeping vacancy rates low. This is something you’ll want to track closely, and document it as your track record. It can be used as a selling point for potential new property owners looking for a property management company.