Financial documentation is a vital component of property management and real estate. And, choosing the right banking tools and accounting tools is paramount to your business success. 🚀 As a new or seasoned property manager, you may be contemplating which type of accounting software to use for your rental business needs.
This article will dive into the options available, what property managers need in an accounting program, and a comparison between traditional accounting platforms versus dedicated property management software to see which solution is best and most effective in helping you manage your properties, tenants, and rental business. 🏘
IN THIS ARTICLE
Available accounting tools on the market for property managers
The importance of choosing the right type of accounting software
Tips for finding the right program for your accounting needs
Available accounting tools on the market for property managers
Property managers have many options available to help track financial transactions but the main two are accounting software and property management software.
Accounting software options
In the digital world of bookkeeping, accounting software can be categorized into two groups: generic accounting programs or specialized accounting software.
Generic accounting software is designed to allow you to track income and expenses for any business type.
General accounting software provides ledgers that track income and expense transactions and provide simple financial reports. There are many companies offering both online and offline options under the general accounting software umbrella.
Whereas specialized accounting software may have components that are more tailored to a specific industry.
Within a specialized accounting software, you can track rent payments and property expenses as well as separately track your rental business income and expenses.
Many general accounting programs offer upgrades to their specialized versions. For example, QuickBooks offers general accounting software but requires a significant upgrade to get access to a more specialized accounting system for property management professionals that allows the ability to toggle or simultaneously access both the rental income, expense ledgers and your rental business operating ledgers.
To learn more about the nuances of using QuickBooks exclusively for property management, check out the following resource guide.
Resource Guide: QuickBooks vs. Property Management Software
Property management software choices
The next level of accounting software is dedicated property management software, also known as landlord or rental management software.
A dedicated property management software has all the same components of a good accounting program but also provides additional management tools specialized for the rental industry
You can find property management software solutions that range from very basic to an integrated full-service suite that integrates all the tools and resources a property manager may need for efficient management.
Before we go into the similarities and differences between general accounting software programs versus a dedicated rental management software choice, we’ll address why this choice is important and what fundamental components to look for in each.
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Choosing the right type of accounting software for your rental management
If you need to travel across the country in the most efficient manner, you wouldn’t choose to purchase a bicycle 🚲 for the journey, right?
Instead, you’d take into consideration all the different vehicles that would help you make the trip safely and efficiently. You’d not just look at price but also fuel efficiency, vehicle maintenance, cruise control and comfort.
The same holds true when you're looking for the best property management accounting software for your rental needs. The right tool with the right combination of integrations and resources is vital to help you go the distance.
At a minimum, good accounting software will not only help you with money management by providing access to key financial reports but should also simplify other tasks like tax reporting and regulatory compliance.
What about paper ledgers and spreadsheets?
These days, hard-bound paper ledgers 📃 are becoming rarer due to the use of online spreadsheets 📊. It is important to understand that both methods are simplistic and present inherent obstacles to landlords and property managers in tracking income and expenses.
Obstacles such as the potential for increased human error, lack of automation and regulatory compliance, difficulty in parsing information, and the like, can hinder business growth and be a source of stress and frustration.
Even if you’re only managing one or two properties, the same obstacles and risks are involved in managing your property's finances on paper or simple spreadsheets; especially when dealing with legal matters such as evictions or state or federal audits.
Because paper ledgers and spreadsheets can be unreliable for meeting the important needs of a property manager, it’s best to consider transitioning to a software program.
🌊 Deep Dive: Spreadsheets vs. Property Management Software for Rentals
Spreadsheets alone are not enough to handle the complexity of property management tasks and responsibilities. As a stand-alone tool to track income and expenses, a spreadsheet could be utilized but as a property management accounting tool, it lacks very important features a landlord will need.
What to look for in an accounting software program
With so many choices, having a clear idea of what to search for is helpful. When evaluating different types of software, here are some important questions to consider:
When evaluating accounting software make sure you can:
Create your own chart of accounts (income and expense categories)
Sync your financial institution banking data to your accounting software for reconciliation and bill pay
Create ledgers dedicated for each tenant and each property
Have ledgers dedicated for owner portfolios if you are managing properties for other owners
Make ledgers that match your real-world financial banking such as ledgers for savings accounts, operating accounts, credit card accounts, mortgages, loans, undeposited funds, unrecorded funds, and petty cash
Give permission-based user access (such as to office staff, bookkeeper, and accountant)
Perform easy monthly reconciliations
Pull comprehensive and specific financial reports like cash flow statements and balance sheets
Create forms needed for tax reporting such as 1099s
Access information needed for regulatory compliance (licensing, State Board audits, etc)
You’ll also want to consider the security of your data. Consider using a cloud-based solution ☁️ versus a program you load onto your computer. Cloud-based solutions offer network redundancy and additional security measures. In either case, be sure your software provides 2-factor authentication (2-FA) options, customized user permission settings, and other security measures.
What to look for in a property management software solution
In addition to all that was mentioned above, property management software should have the following added functionality to meet the unique needs of property managers:
🤝 Relationship management
Relationships are the key to a successful rental business. It’s easy to make your tenants and owners happy with the right tools. Look for property management software that lets you offer your tenants an online portal and mobile app so they can submit work orders, schedule and pay rent online and see their statements at a glance.
If you manage portfolios for other property owners, look for software that gives owners their own portal as well where they can send owner contributions, see their property and portfolio ledgers and access shared files.
📱 Communication tools
A good property management software will have text messaging and automated and customizable email templates built into the program to help streamline day-to-day operations.
🛠 Maintenance management and tracking
Check to ensure the software allows you to assign maintenance requests, send work orders to vendors and owners, prioritize repair requests, and manage all your maintenance needs.
📡 Marketing vacancies
Many property management software providers let you submit your vacancies to a syndication network to get more exposure and leads. The more syndicated sites the software connects to, the greater odds you’ll fill your vacancies faster. If the software offers syndication, but not lead management, it might not be a good fit for you. You should be able to save and communicate with leads directly from your software.
🗃 Document management
From customizable forms to e-signatures, the best property management software should make document management a piece of cake.
💳 Online payment processing
These days, giving your tenants options on how to pay rent is a must. Your rental software should integrate with a merchant processor and cash payment network so you can accept rent payments. This one tool alone is a game-changer. Payments are automatically posted which eliminates human error, and the funds go directly to your bank account eliminating the need to make a deposit.
Other key benefits of the best property management software
Great for cash-basis accounting
Integrated tech stack
Built-in customer relationship management (CRM)
Work order management
Dashboard for company overview
Detailed and customizable reports
Reusable and customizable forms and leases
Comprehensive tenant screening
Automated tenant reminders and auto-responders
And other time-saving tools
A good piece of accounting software helps you tackle financial accuracy but a great property management software will have those same accounting components as well as the tools that'll make running your entire rental business a breeze.
Tips for finding the best property management accounting software
Whether you go for a traditional accounting program or a robust property management platform, it’s important to choose wisely. Here are a few tips to help you find the right fit for your rental business needs.
🤓 Get expert advice
You may find your accountant has strong opinions about which accounting solution you should use because of their own familiarity and preference.
Remember that the program you decide to use should meet your business needs first.
As long as the software has the needed financial reports your accountant may require and allows you to customize or create your chart of accounts (income and expense categories), all accounting and property management software should be able to accommodate your accountants' needs.
Most landlords track income and expenses with cash-based accounting while some property management track operating expenses with accrual-based accounting. If you don’t already know, ask your accountant about cash-basis versus accrual accounting before shopping for a program so you can discuss your needs with the software provider.
🔮 Consider future goals
Check to see if the software routinely provides product updates and featured resources. You might not need or use all the tools the software provides at the start, but having them as an option for growth or to save you time and improve efficiencies is a game-changer.
🙅♀️ Don’t take their word for it
Customer service and satisfaction should be priority one! It’s great to check the software’s website for testimonials but also read the reviews from reputable sources such as Google reviews.
🛍 Try before you buy
Most good software companies will provide a free trial. Be sure to find out if the trial removes the data after the trial ends as some providers don’t allow you access to a full version or live version until after payment is received.
☑️ Check contract terms
You should have the freedom to change software providers at any time so be careful to check if there are contract terms that lock you into a non-refundable situation.
💲 Price point tips
Remember, price isn’t an indicator of the quality of the product or service. Some very low-cost software providers charge much higher prices for screening, data, payment processing, and other ala-cart items. Some very expensive software providers do the same so take care to weigh the total costs against the user experience, customer service, and features.
There are some great software providers who opt to offer their services at very affordable rates. Additionally, they may offer discounts on tenant screening reports, unlimited data storage, and discounted and/or free payment processing if you use their software. But don’t assume they do, ask about any additional fees you may incur.
It’s important to note that some contract terms can work in your favor. If you love your software provider, don’t be shy to ask if they offer a pre-paid discount.
😌 Ease of transition
Growth and efficiencies often require change. Consider steps you’ll need to take when you inevitably change processes and systems. With some careful planning, it is possible to seamlessly change to a new property management accounting system.
💡Remember: Creativity is a useful skill for interpersonal relationships, goal setting, and coming up with new ideas to help your business grow but not when it comes to your accounting practices and the financial health of your rental business.