As a software provider to the property management industry, Michael Abbott from Realbase shows us how to extract every possible profit dollar from your existing rent roll.
Maximising income has two facets – minimising losses will result in increased income just as much as increasing fees or introducing new income earning components. Hence, this article covers protection of current income from losses as well as ways to expand current income.
1. MAKE SURE THAT YOUR SOFTWARE SYSTEM ACTUALLY RECONCILES TO THE BANK BALANCE
Most systems have a final month-end report showing the trust balance and the un-presented items, which should always agree to the bank balance. Do a random check regularly by getting a copy of the bank balance and comparing the report.
2. CHECK FOR OLD DATES IN THE ‘UN-PRESENTED’ LIST
The importance of reviewing the un-presented items cannot be over-emphasised. The term “un-presented” means that these entries have not (yet) shown on the bank statement, but they also mean that we are expecting them to show soon. If rent has been received in cash, you are responsible for the money immediately, and should ensure that it is banked promptly. If the wrong amount has been receipted into your software by mistake, then, again, a correcting entry should be entered promptly; otherwise, an owner may be paid money to which they are not entitled – and which may never in fact have been received. Some systems have a separate section called adjustments – these should be treated as un-presented items and cleared as soon as possible if they are data entry mistakes.
3. REVIEW THE HELD IN TRUST REPORT AND ALL ACCOUNT BALANCES
The total of the trust account is made up from the total of all individual accounts. Always review the “suspense” account (sometimes called ‘unidentified’ or ‘unallocated’). Where deposits are made into the trust account with no identifying information, it is usual practice to record this under an account called ‘suspense’ or ‘unallocated’. As soon as practical these transactions should be queried through the bank and cleared out to the correct account. Every transaction in this account should have clear explanatory notes.
Too often, we find that these accounts remain with balances for months or years. If you have many unknown deposits, consider opening a new suspense account each year (or even each month) so that the entries can easily be identified and adjusted, where necessary.
4. CHECK TENANTS WHO PAY IN ADVANCE.
Although arrears are often checked, tenants who are significantly in advance may not be. Some systems will provide a report showing only those tenants who have paid to dates in the future. Checking this report can highlight two important areas. The first is mistakes in entering the dates, resulting in erroneous future ‘paid to’ dates. The second is genuine extra payments made by tenants, sometimes in error, other times intentionally. If a tenant has actually paid months in advance, then usually this money will have been given to the owner. When they leave the property, they may ask for a refund, and getting the money back from the owner can be difficult. It may be better to keep back some of the advance money.
5. PROTECT AGAINST THEFT
There are various ways that money can be disappear from your trust account:
- Make sure cash and cheque receipts are entered off the receipt book, not when they show in the bank statement
- Make sure that you limit how many people can enter bank account numbers
- Print a report that shows new tenants, together with the required letting fee, and the actual letting fee received. This can highlight tenants where no letting fee was processed through the trust account
- Get the Bond Authority to send you a list of bonds they are holding for your company and check them against your records
- If your system has a log of changes, check the change log regularly for manual changes made to paid to dates and other data.
6. ENSURE ALL STAFF HAVE THEIR OWN PASSWORDS.
Staff must be made aware of their responsibility for all entries made in the software system, and that most actions can be traced back to the person responsible – but this can only be done if they are given their own passwords and authority levels and do not share these with other staff.
7. REVIEW ALL FEES (NOT JUST MANAGEMENT FEES).
Get a report showing the actual fees being charged for each property. Check that the figures look correct and that all current charges are in fact being applied. Mistakes in entering new owner and property records can result in no fees being charged for months. If you offer the first month or two at zero fees, make sure there is a reminder set to apply the fees after that.
If you are confident that you provide a superior service to your clients, consider increasing your fees. Surprisingly few owners will switch property managers because of an extra percentage on their management fees. Check if your management authority allows the management fee to be applied to receipts other than rent, and if it does, that these are in fact being applied.
8. REVIEW INSPECTIONS
It is our experience that in most cases the charge for inspections does not cover the time and effort required to complete the inspection report to a high quality – most users do not charge enough. If you are using an iPad or iPhone to create high quality reports, charge accordingly.
It can be too easy for property managers to postpone inspections for a few weeks at a time. Not only does this result in loss of income, but it can put you in breach of the management authority in which a certain number of inspections are required to be done each year. Check your inspection income. 50 properties inspected 3 times per year at $40 per inspection should be bringing you in $6,000 each year. Check your figures against your inspection income for a year.
9. CONSIDER OTHER CHARGES
Make sure you are maximising your income by checking whether you are applying the following miscellaneous items:
- Postage Fees
- Charges for advertising
- Recoupment of costs for Tenancy Tribunal hearings
- Lease Break Fees
10. REVIEW RENT ARREARS
Not only are your owners losing money, but you are losing fee income when tenants miss rent payments. Adopt a policy of minimal rent arrears. Track the arrears trend for each property manager.
11. REVIEW YOUR AVAILABLE PROPERTIES.
Empty properties bring no income. Review the rent rates and maintenance required if properties remain empty for more than a few weeks.
12. REVIEW YOUR BUSINESS GROWTH.
Most systems will provide graphs showing the earnings over the last year or more, and also the number of properties won and lost. Set a target and track your progress.
Not all of the suggestions in the article will be appropriate to all operations, but at least some of these will assist most property management operations. Other considerations such as the level and types of charges being made by competitors will also influence the implementation of some suggestions, however many of the items discussed are simple checks that can positively influence your bottom line.