Turn Key Asset Management

Your Home Is Where Our Heart Is

Financial management is a crucial aspect of property management, ensuring that the property operates within its means, generates a positive return on investment, and complies with all financial and tax regulations. Effective financial management helps property owners make informed decisions, maximize profitability, and maintain transparency. Here's a detailed breakdown of each component:

Budgeting

Budgeting involves creating a detailed financial plan that outlines expected income and expenses for the property over a specific period, typically a year. The key aspects of budgeting include:

Income Projection: Estimating the expected rental income based on occupancy rates, rental rates, and lease terms. This projection may also include additional income sources, such as parking fees, laundry facilities, or storage rentals.
Expense Estimation: Identifying and estimating all operating expenses, including maintenance, repairs, property management fees, utilities, insurance, taxes, and any other costs associated with the property.
Reserve Funds: Allocating a portion of the budget for reserve funds to cover unexpected expenses, such as emergency repairs or major capital improvements. Having a reserve ensures that the property can handle unforeseen costs without straining cash flow.
Cash Flow Analysis: Analyzing the cash flow to ensure that income exceeds expenses, resulting in a positive net operating income (NOI). This analysis helps identify potential cash shortfalls and adjust the budget accordingly.
Monitoring and Adjustments: Throughout the year, property managers monitor actual income and expenses against the budget, making adjustments as needed to stay on track. This may involve cutting costs, increasing rent, or reallocating funds.

Accounting Services

Accounting services are essential for maintaining accurate and organized financial records. These services provide a clear picture of the property's financial health and ensure compliance with financial regulations. Key components include:

Bookkeeping: Recording all financial transactions related to the property, including rent payments, expenses, vendor payments, and other income or costs. This ensures that all financial data is accurately tracked and categorized.
Accounts Payable: Managing the payment of bills and invoices, including those from vendors, utility providers, insurance companies, and other service providers. Timely payment is crucial for maintaining good relationships and avoiding late fees.
Accounts Receivable: Tracking rent payments and other income, following up on late payments, and ensuring that all revenue is collected in a timely manner.
Bank Reconciliation: Regularly reconciling the property’s bank accounts to ensure that the recorded transactions match the actual bank statements. This helps identify any discrepancies or errors and ensures the accuracy of financial records.
Expense Allocation: Categorizing and allocating expenses to the appropriate accounts, such as maintenance, utilities, insurance, and property management fees. This allows for more detailed financial analysis and reporting.

Financial Reporting

Financial reporting involves providing property owners with regular updates on the financial performance of their property. These reports offer insights into income, expenses, profitability, and overall financial health. Key aspects include:

Monthly and Quarterly Reports: Property managers typically provide financial statements on a monthly or quarterly basis. These reports include income statements, balance sheets, cash flow statements, and a summary of any significant financial activities during the period.
Income Statements: Showing the property's revenue, operating expenses, and net income, providing a snapshot of profitability over a specific period.
Balance Sheets: Detailing the property’s assets, liabilities, and owner’s equity, offering a comprehensive view of financial standing at a given point in time.
Cash Flow Statements: Highlighting the movement of cash in and out of the property’s accounts, helping owners understand liquidity and cash reserves.
Variance Analysis: Comparing actual income and expenses to the budgeted amounts, explaining any significant variances, and recommending corrective actions if necessary.
Owner Distributions: If the property generates excess cash flow, the property manager may distribute profits to the owner. These distributions are typically documented in the financial reports.

Tax Preparation

Tax preparation is a vital service that ensures compliance with all tax obligations and helps property owners take advantage of available tax benefits. This includes:

Tax Documentation: Gathering and organizing all necessary financial records, such as income statements, expense reports, and receipts, to prepare for tax filing. Proper documentation ensures that all deductions are supported and that the property is fully compliant with tax laws.
Tax Deductions: Identifying and maximizing allowable tax deductions, such as mortgage interest, property taxes, depreciation, maintenance expenses, and management fees. These deductions can significantly reduce the property’s taxable income.
Filing Tax Returns: Preparing and filing federal, state, and local tax returns on behalf of the property owner. This may involve working with a certified public accountant (CPA) or tax advisor to ensure accuracy and compliance.
Tax Planning: Advising property owners on tax strategies to minimize tax liability, such as timing repairs or improvements, utilizing 1031 exchanges for property sales, or setting up tax-advantaged ownership structures.
Audit Support: In the event of a tax audit, the property manager or accountant provides support by supplying the necessary documentation and records, answering questions, and representing the property owner’s interests.