So, what is Full Month Accounting and why are so many property management companies moving their accounting practices to it?
Full Month Accounting is essentially the concept of processing statements and payments to a property owner at the end of a full month, rather than mid month.
Mid Month Accounting traditionally has caused a lot of confusion for owners and accountants regarding the monthly owner statements. One of the biggest reasons for the confusion was due to how the statement dates are run. When an owner is paid in the middle of the month, this means the owner statements run in overlapping months. For example, let’s say an owner was paid on November 10th. This means their statement would run from October 11th- November 10th. Mid Month Accounting, and having statements run overlapping months makes the statements confusing and often difficult to understand.
With Full Month Accounting, owner statements run from the first of the month to the end of the month. For example, on January 31st, an owner would receive an owner statement showing income and expenses from January 1st-31st. Since income and expenses often trickle in throughout the month, net funds are also dispersed to owners at the end of the month to coincide with the statement date. Many property management companies use this method, as it is a much cleaner and simpler approach to property accounting.
Benefits of Full Month Accounting for the Property Owner
- Payments made to the owner come in at the very first of the month, each month, regardless of the sometimes sporadic payments made by tenants. This consistency provides rental owners peace of mind and a less stressful experience.
Owner statements run from the 1st to the end of the month. This means owner statements are much cleaner and easier to understand, A year-end statement of Dec 31st is also better for income tax filing purposes.
If a tenant does not pay the rent, the owner will know 30 days in advance. This way the owner can be better prepared for such an event, instead of knowing a few days before you are scheduled to receive your deposit. It makes an unfortunate situation much less stressful.
No more waiting for lingering utility or partial payments to come in from the tenant throughout the month since all payments will be collected and pooled for the end of month payment.
Since owner funds come well before a mortgage due date, (most mortgages due by 15th of the month) the owner will have plenty of time to make their payment and not be rushed waiting on the rent deposit to make a payment deadline.
The property management company will have enough funds on hand to pay for repairs. With Mid Month Accounting, if a larger bill comes in, the PM cannot pay it. Since the PM company needs to pay vendors and contractors promptly, having funds available prevents delays while an owner sends in money. Not having enough funds on hand to manage a property is inefficient and leads to unnecessary delays.
Frequently Asked Questions
Q) Won’t the property management company earn a lot of interest on my money?
A) First off, understanding the very low rates on liquid checking accounts, the interest would not be much at all. Second, property management trust accounts are either non-interest bearing or any interest earned would simply be used by the bank to offset banking costs.
Q) I can’t afford to have the property management company hold my funds for a few weeks. How is this fair?
A) When a property owner hires a property management company, they are willingly relinquishing some control. This requires the property owner to be financially stable and able to afford a few weeks in the beginning. After the initial “holding period”, owner proceeds are paid to the owner like clockwork by the first of each month. If a property owner is not able to afford this initial period, they may need to reconsider owning a rental property.