I've looked through a bunch of the forums and haven't really been able to address my question, so I was hoping someone here could help me out. I'm also going to double check with my attorney on this, but was hoping for some of your advice.
I currently own a 6 unit property that I have managed for 7 years for myself and partners. I always had a checking account and savings account for security deposits in the LLC name, with myself and one other partner as signatory authority for paying bills, etc. and I took a fixed rate monthly management fee that was paid to me personally. KISS principle, right??
However my portfolio is rapidly growing, I am working with various investors on different properties and I am in the process of setting up property management software that will make things easier to scale as it grows. The implementation team from the software company is telling me the simplest way to chart the accounts from an accounting standpoint is to set up one management company for all the properties with a trustee account for rents and a trustee account for security deposits, and all the money from the various properties would go into those two accounts. Meaning all the rents from the various properties would be paid to my management company (not the owner entity) and deposited into one account, the bills from the various properties would then be paid from that account and tracked in the software to the appropriate property, tenant, unit, etc. and then the balance for each property could then be transferred to an owner account each month. Security deposits (no matter from which property) would be deposited and held by the management company separately from the operating account and tracked to each property through the software. Management fees would then also be transferred to a separate account.
With my current property we just put the money in the bank, paid the bills, and left the rest in there until the end of the year when we paid ourselves a nice little bonus and left a reserve. But as the person managing the different properties I could see the value of not having to balance and reconcile various checkbooks by using one account with various charts in the software. The obvious concern in my view is whether or not this would be illegal commingling of funds or not since the management company would have a separate account from the "owner" account.
Does anyone have experience managing properties for other people or with this type of setup? I have never worked with a property manager or done it for someone else, so I'm not sure what the standard is for handling the money of multiple ownership entities.
Thank you in advance for your help!
I use Buildium to track all of my owners' rents and expenses, but I keep my own properties separate from that system. I only have four of my own, so I just do basic accounting in Excel for those. You can set up multiple accounts in Buildium, so I think if you wanted to avoid commingling funds, you could just have a separate account for the operating expenses, rent and security deposits for your own properties. I will probably look into adding those accounts in my current software in the coming year myself.
I use Rentec. Pretty similar to Buidium.
Thanks @Dawn Brenengen and @James Wise for your responses. I didn't mention it before, the site I'm talking about is Appfolio. I know I can use multiple accounts with the program but was confused about the advice to use two management accounts for all of the different properties (one for rents/expenses and the other for security deposits) versus doing two accounts for each property/ownership entity. Any thoughts on this?
I think you need four accounts. One for your rents, one for your owners' rents, one for your security deposits, and one for the owners' tenants' security deposits.
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