Income and expenses: What property managers need to know

In an earlier article we explored bookkeeping basics for a financially successful business. The topic warrants further exploration, especially when considering how to keep your company books in the black.

You can think of property management income and expenses as the fundamentals of property management accounting. Keeping it “in the black” is a phrase that means you’re making a profit. That is, when you look at your company’s income statement—also called a profit and loss statement (or P&L for short)—you see a positive amount on the net income line. In contrast, “in the red” means that your net income is negative for the period.

Property Management Income Statement

Net income is sometimes called the “bottom line” because it’s the grand total and shows up at the bottom of the report. (Accountants and bookkeepers are a literal bunch.)

Property Management Income and Expenses

The key to a profitable business is making sure that you’re always bringing in more money than you spend. So let’s talk about the property management income and expenses that you’re likely working with.

Revenue

Property management companies have several sources of revenue that feed the top line of their income statement. Depending on where you’re located, some of those income sources might have rules and regulations. For example, late fees are highly regulated. That includes if or when they can be charged, how they should be structured, who keeps them, and how much they can be.

Different rental markets have different trends and different laws. What works in Boston, MA might not work in Portland, OR. Regardless of where you operate, here are the main sources of income to be aware of before drilling down to the finer details:

Expenses

It turns out that there are many ways in which property management companies spend money as well! Some of the most common culprits are:

Another fundamentally sound practice is to continually think about growing your client base. Even if you’ve got a rock-solid base of clients, it’s still likely that you’ll lose a client every now and then. This can happen for reasons completely outside of your control. For example, the real estate market could get stronger, and a landlord might want to sell their rental property. Nothing hurts the top line of an income statement like fewer clients; so hedge against that outcome by implementing consistent growth strategies, including boosting your revenue without adding more doors. You should be vigilant about keeping up-to-speed on your “net income” (revenue minus expenses). Watching this figure on a monthly basis makes for good fiscal hygiene, as does maintaining an effective chart of accounts.

You should be vigilant about keeping up-to-speed on your net income (revenue minus expenses). Watching this figure on a monthly basis makes for good fiscal hygiene, as does maintaining an effective chart of accounts..

Another fundamentally sound practice is to think continually about growing your client base. Even if you’ve got a rock-solid base of clients, it’s still likely that you’ll lose a client every now and then.

This can happen for reasons completely outside of your control. For example, the real estate market could get stronger, and a landlord might want to sell their rental property. Nothing hurts the top line of an income statement like fewer clients; so hedge against that outcome by implementing consistent growth strategies, including boosting your revenue without adding more doors.

Tools for Staying in the Black

At the end of the day, you’ve got a business to run and bookkeeping isn’t always the most rewarding or revenue generating part of the job. The right tech stack can automate much of the process and make it easier to share vital details on the health of your properties—and the value that you’re adding—with owners.

With the knowledge above and the property management tools available to you, you’ll know just what line items to look out for and how to track them with less effort.