The two sides of property management fees

If you’re like me, you spend a lot of time thinking about your next paycheck: How much is it going to be? When will it clear my bank account? What am I going to spend it on? Why can’t it be more? Who should I talk to about that? (If you’re curious, my answers are “not enough,” “not soon enough,” “already spent on the child, day care and diapers,” and “maybe a tip jar would help.”)  

For many property management companies, paychecks come in the form of management fees. And since most property managers pay themselves from incoming rent checks before paying the owner, it raises another really important question: Whose money am I working with?

When it comes to property management accounting, property management fees live a double life as a property expense and as company income. It’s important to know that this double life doesn’t refer to double entry bookkeeping. It’s actually two distinct sets of books. Feel free to use the next few paragraphs to impress your friends at cocktail parties.

Double entry bookkeeping is a method of recording transactions on a single set of books. It has two rules. First, every transaction must have a debit and a credit. And second, the sum of all debits must equal the sum of all credits. If it sounds confusing, don’t worry. We’ve got a book that’ll help you out.

When it comes to property management fees, we’re talking about two sets of books: one for the specific property and one for your company.

• If I’m a landlord reviewing my monthly statement, I’ll see “property management fees” as an expense. Ideally, this amount is the same every month and it’s low.
• On the other hand, if I’m a property manager, that same management fee is income. It’s how I pay the bills, and it’s one of my primary sources of cash. When I look at my company’s books, I should see a big number next to “management fee income.”

Since most property management companies control the inflows and outflows of their clients’ cash, it’s possible that you won’t need to write a single check. Usually a bank transfer is all you need.

When you do record the property manager fee (or any other type of fee your company earns from property activity), be careful to double check that the property expense equals the company income.