A financial balancing act is similar to property management Income and Expenses. One source of income for you is the money you receive from fees and rent, for example. In addition, there are expenses, such as maintenance, taxes, invoices, and insurance. How you approach this delicate balancing act will have a significant impact on the outcome of your real estate project. It has an impact on your investment’s profitability, stability, and overall performance. Managing income and expenses is critical for successful property management. In this article, we’ll look at the most important parts of financial management in property ownership and provide critical success suggestions.

Understanding Property Management Income

Property management income encompasses various revenue streams that property managers rely on to ensure the financial well-being of the properties under their care.

• Primary Source: Rent Payments

The primary source of income for property managers is the rent paid by tenants. It forms the backbone of financial stability, and consistent, timely rent collection is essential for smooth operations.

• Additional Revenue Streams

Apart from rent, property managers can generate income through leasing fees. These fees are typically charged when a property is leased or re-leased. Additionally, charging late payment fees encourages tenants to adhere to payment deadlines.

• Income from Ancillary Services

Property managers may offer ancillary services such as maintenance, landscaping, or utility management, creating an additional revenue stream. This diversification adds stability and complements the core income from rent.

• Ensuring Reliable Income

Establishing reliable income streams is crucial for sustainable property management. Property managers must implement robust rent collection processes, clearly outline leasing fees, and explore opportunities for additional services to enhance overall income.

Property Management Income 

Property management firms generate revenue from a variety of sources, which flow into the top line of their income statements. Depending on where you live, several of these income sources may have rules and requirements. For example, late fees are heavily regulated. This includes whether or not they can be charged, how they should be structured, who retains them, and how much they can cost. While owners pay numerous fees, tenants and community residents also pay them, such as late fines, amenity fees, and pet fees.

• Management fees

These are customary fees for doing routine property management activities, typically a percentage of the rent (or a fixed price for associations).

• Onboarding Income

Many property managers charge an initial fee to welcome new owners, set them up in their systems, and do an initial examination of their properties.

• Fees Concerning Lead-to-Lease

There are also many fees associated with locating tenants for vacancies. Owners are charged tenant placement and leasing fees, while tenants pay application and lease renewal fees.

• Maintenance and repair markups

A premium for acting as a general contractor on maintenance items is typically a percentage of the overall property maintenance price. This is especially handy if you do not have an in-house maintenance team and rely on vendors to manage maintenance and repairs.

• Lockout fees

Also known as “re-key” fines, this is a penalty fee imposed if a tenant locks themselves out or loses their keys. This is particularly common in student living.

• Late or non-sufficient funds (NSF) fees 

Delinquent payments incur additional costs. Tenants who fail to pay their rent on time are frequently charged late fees by property management agencies. They may also levy a non-sufficient funds fee if the cheques are not clear. These fees can be an extra source of income, but it is critical to create clear policies to minimize tenant disputes.

• Other Fees 

There are other fees that property managers might impose to generate new revenue. For example, if you allow dogs, you may charge a pet fee to offset the cost of potential damage. You might also provide an amenities bundle for an additional cost. Amenities might range from frequent HVAC filter maintenance to package lockers. If you have parking spaces, you can charge a parking fee.

Property Management Expenses

Of course, you can’t base your owners’ or your success just on the money you make. You must also consider the money that leaves your firm. Let’s look at some of the most prevalent property management expenses.

• Overhead 

Several expenses occur under the category of overhead. It is the money paid to keep the lights turned on and the workplace functioning. Rent and utilities for your office space, consumables such as computer equipment and paper, and fees for any cars owned by your company are all examples of these expenses.

• Payroll and contractor fees

Payroll covers employees’ base salaries and any benefits, bonuses, overtime compensation, and training and development charges. Contractor fees include the service fees charged by contractors as well as any additional fees they may charge for materials and permits.

• Insurance and licensing

Depending on the state in which you operate, you may be required to obtain a property management or real estate license. For additional information, see our post on property management licenses and certificates. Property managers also require proper insurance coverage, which includes liability insurance and errors and omissions (E&O) insurance.

• Service fees

These are the expenditures for software and other services that can be used in a variety of areas of your organization, including project management tools, property management software, tenant screening, and marketing services.

• Membership fees

If you belong to a professional organization that charges dues, such as NARPM or a chamber of commerce, you should account for those costs as well.

• Legal fees

You’ll need a lawyer to prepare lease agreements, handle eviction processes, and resolve other legal issues that may occur in property management, so incorporate lawyer fees into your expenses.

Property Management Income and Expenses Best Practices

Now that we’ve covered the basics of property management income and expenses, let’s go over some recommended practices. Now that we’ve covered the fundamentals of property management income and expenses, let’s look at some best practices.

• Maintain an accurate chart of accounts

You should monitor your net income (sales minus expenses). Maintaining an effective chart of accounts, as well as monitoring this figure every month, promotes excellent fiscal hygiene. Many accounting software systems have a chart of accounts capability, which pulls the entries into a profit and loss statement and calculates your net income automatically. Buildium contains strong accounting capabilities such as automatic bank reconciliation, account management calculators, custom and industry-specific fields, 1099 e-filing, and complete visibility into every transaction your company conducts. 

• Keep an eye on your bottom line

Having precise and up-to-date numbers is only useful if you keep an eye on them. Monitor your bottom line to ensure that it is not slipping. If it does, open your accounting program to determine where the problem is. That way, you can address it before it becomes a major issue. Property management software is also useful here. Buildium allows you to refresh your figures in real time on an easy-to-use platform, so you can access the information you need quickly.

• Work with a Growth Mindset

Even if your figures are strong, you never know when an owner will abandon your services or simply sell off their properties, or when the market will change. Nothing hurts the top line of an income statement more than fewer clients, so prepare for that possibility by focusing on areas where your company might expand. Use your chart of accounts and net income to determine when and how many new clients to bring on. Determine your growth plans for the coming years, whether aggressive or not, and use your income and expenses, as well as your staff numbers, to determine when and how to implement them.

• Find New Streams of Revenue

A profit and loss statement, as well as an accurate chart of accounts, can assist you in identifying cost savings and new income prospects. If you handle HOAs, for example, you may discover that your staff is devoting a significant amount of time and money to gathering and distributing disclosure forms for properties for sale. There may be a chance to save money and perhaps generate cash by implementing a service like HomeWiseDocs, which simplifies the procedure and allows you to charge residents for it.

Read More: How To Grow Your Property Management Business: 4 Strategies For 2024

The Bottom Line 

Effective property income and spending management is a strategic need for real estate success, as well as a financial necessity. Property owners can increase profitability and protect their investments by closely monitoring rental income, reducing operating expenses, and maintaining a complete budget. Staying on top of market trends, embracing digital record-keeping tools, and cultivating positive tenant relationships all help to ensure long-term stability. A proactive and informed approach to property management establishes the platform for long-term financial success and resilience in the ever-changing real estate landscape.