Hiring a property management team can add value to your business by saving you time and money. Typically, the benefits All County Property Management Cape Coral of hiring a team include services fall under one of two categories:
Financial Services
Management Services
Financial Services
Broadly speaking, a property management company helps the landlord achieve their financial goals for a property. The financial tasks, typically provided by property management companies, fall under one of three categories:
Accounting
Budgeting
Rent Collection
Accounting
Property managers provide an assortment of financial statements that help you gain insight into the building’s performance. The monthly financial statements a property manager provides include, but are not limited to, the following:
Variance Analysis: This analysis compares the actual monthly and yearly financials to what was outlined in a property’s budget. The difference in these values, known as the variance, will be small for properties performing as expected and will be larger if the property is performing above or below expectations. By providing comments and background on both month-to-date and year-to-date performance, this analysis can help an owner understand the likelihood of achieving the forecasted future cash flow.
General Ledger: A general ledger provides an overview of all monetary transactions related to the property over a period of time. Giving an explanation of each transaction ensures the landlord is aware of each exchange and why it was needed.
Income Statement: The income statement tracks revenues and expenses incurred by the landlord. Using these numbers, the property’s profitability can be determined. The income statement will provide the landlord with an understanding of the financial performance of the property for the given time period.
Balance Sheet: A balance sheet gives the property’s capital structure at a point in time. It shows the property’s assets and liabilities, as well as how much has money has been put into the property. This can supplement other financial reports, such as the income statement, to provide a more holistic overview of the financial performance of the property.
Rent Roll Reconciliation: A rent roll lists the rental terms of each tenant: the monthly rent, escalations, lease expiration date, etc. Complex escalations across multiple tenants can be difficult to track without meticulous record, so rent roll reconciliation helps ensure that both the landlord and tenants are aware of the rent that is due.
Aged Delinquencies: A report that shows if any tenants owe an outstanding balance or are behind on rent. Details about any payment plans, collections and potential future issues can be added to help the owner understand the health of tenants in the building.
Statement of Cash Flows: Like the name would suggest, a statement of cash flows tracks the property’s inflow and outflow of cash. The statement breaks each transaction into one of three different activities:
Operating activities: include those revenues and expenses that come with property operations, such as rent, repairs, supplies, property management fees and taxes
Commercial Real Estate Investing activities: include cash used for property investments, such as building upgrades
Financing activities: include financial transactions, such as the actual purchase of the property itself
Using this statement, a property manager calculates the net increase or decrease in cash for the month.
Bank Reconciliation Statement: The bank statement provides the beginning balance, all transactions, interest earned and the ending balance. A bank reconciliation statement looks for any discrepancies in the account’s bank statement.
Cash Reserves Summary: Because cash flow is a common goal for many landlords, a Cash Reserves Summary is a very important tool to help the owner know if distributions can be made or not. Everything from future leasing commissions, tenant improvement allowances, capital improvements and accruals for property and other taxes can be included in this summary.
Budgeting
In addition to tracking the financial standing of the property, a property manager will also project the income and expenses of the property and establish a budget that reflects the owner’s goals, assuming the property performs as expected. Reports can be customized depending on each landlord’s unique needs.
An executive summary will be written periodically to inform the landlord how the property is performing relative to the budget. If the budget is not met, the property manager will record the difference in the variance and track the cause.
For example, say budgeted expenses were $5,000 and an unexpected burst pipe increased actual expenses for the month to $6,000, the variance would be $1,000 (20%). The property manager would clearly note the increase in expenses was due to the unexpected burst pipe.
Rent Collection
Ensuring tenants pay their rent is a key step towards meeting ownership goals. Multiple tenants with a variety of rental terms and rates, each with separate account balances, requires meticulous record-keeping. Property management companies maintain tenant ledgers to keep track of each tenant’s account balance and rent schedule.
If a tenant violates their lease (i.e., doesn’t pay their rent) a landlord typically holds the right to put the tenant in default. Knowledge of the process is imperative if one hopes to cure the default of a tenant, as there are various legal intricacies involved. Property managers act on behalf of landlords as agents and pursue default remedies when necessary.
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