So, we’ve talked over the last two parts about managing expectations and managing information slow. Today, we’re going to get to the real meat-and-potatoes part of managing your property manager: keeping track of the money with supporting documentation.
One of the biggest arguments against hiring a property manager is that in a sense, you’re hiring a fox to guard the henhouse: the manager is looking to profit from his work, and you’re giving him or her leave to deal with the vast majority of the finances surrounding your investment. Who wouldn’t take the opportunity to bend the money in their favor?
Fortunately, the answer is “anyone with an eye on the long term and/or a decent set of ethics,” which (surprisingly to some people) is actually the majority of people who get into property management as a profession. You do still have to put some decent effort into tracking the money, just to “keep an honest man honest,” as the saying goes. Also keep in mind that no one’s perfect, so there may be honest mistakes from time-to-time that just need to be corrected.
It’s one thing to look at numbers on a report; it’s another to make sure those numbers are correct. Your PM should be able to provide you copies of rent checks and expense receipts to back up the numbers on their reports we outlined in this article. At the very least, you should request these supporting documents once a year when you do your tax returns. Quarterly is better, and some PMs may be able to supply these monthly or “instantaneously” via technology.
What receipts should you be looking for and why?
- Copies of Tenant Payments: You’ll want these to support you received your funds from the PM in a timely manner and they aren’t holding back on them. It’s a good idea to also ask for a copy of the envelope sent as that will have a postmark date on it.
- Utility Payments: Check for late fees that may not be your fault, so you shouldn’t pay for them.
- Lawn/Snow Charges: Besides verifying the costs being reasonable, when and how often were lawns cut and snow cleared?
- Maintenance Expenses: Are the charges reasonable? Have you been double-billed for the same issue? Were you charged again for something not done right the first time?
- Management Fees: Were the right amounts charged as per your contract?
Of course, there are many more types of receipts, but you get the general idea.
Once you receive the supporting information, you’ll want to make sure they all add up to what’s on the reports you’ve been receiving. With today’s technology, your PM should be able to provide you scanned copies of all these so you don’t have to wade through piles of paper.
By combining a review of receipts with the information flow established in my prior article, you can give your property manager the maximum safe levels authority and ability to solve problems without bugging you. You can also be confident that you’re getting all of the information you need to see when your investment is starting to wander into not-profitable-enough territory and nudge it back on track.
How do you track the money in your rental business? Any tips for those new to using a property manager?
Be sure to leave a comment below!