As property managers we treat other people 's money on a regular basis . For example , when we collect a deposit, cash handling tenant and when we collect the rent or pay a bill on behalf of an owner, we are managing the money of the owner. With all that money floating around, it is essential to know that the money belongs to whom . This is where specialized accounting software designed for the management of the property is , but having the right software is only half the battle. The other part is to know your options for managing other people's money (and the rules that go with it ) .
Trust represents the rescue!
Accounting option is to keep all the money in separate bank accounts. This is the obvious choice and in fact can be anything you want. It's easy and simple, so what 's the catch ? The answer is time. Think about how long it takes to balance your checkbook. Now multiply that by five, ten, a hundred or two ! This is the number that would have to balance checkbooks if you had a bank account for each owner.
So what is the alternative ? Having a bank account and not something called trust accounting . Trust accounting sounds intimidating , but it's really nothing to lose sight of the money received , held and paid on behalf of each owner.
A bank vault full of safes
An easy way to think of the accounts of the trust is to imagine a bank vault full of safes, each belonging to a different owner . Although money everyone is kept in the same chapel , hiding each person is separated. Similarly, with the accounts of the trust, even if the money keeps everyone on the same bank account , money from each owner separately track and is taken into account.
Know the rules - Check with your state before starting
The first step in creating an escrow account is to check the laws in your state, when accounting trust any of us wants to be the next Kenneth Lay. You should review the laws to make sure you do it right . Note that the account must be set up in your company name , not the name of the property owner . In the past, the IRS has provided funds in trust accounts because they had a lien against the owner and the account was in the name of the owner. If you drop the ball and keep the money in the owner's name , the same could happen to you. And remember , there is no IRS agent standing in front of your tenants why your deposits to pay a tax bill he did. Will you !
no confusion
While funds are allowed to have different owners , in one trust account is not allowed to mix their money from an accounting point of view. In other words, it allows you to pay money on behalf of an owner to use the money of others, even if the square things up later. The rules are stricter when it comes to your money. It is not enough to maintain his independent from the accounting point of view money. In most cases, it is also required to keep their money in a separate bank account .
Trust Accounting - how hard can it be?
Accounting confidence is not very difficult but it is easy to fall if not careful. Here's an example . Suppose you are holding money belonging to two different owners in a trust account : Deficit William Sam and exceptional .
trust Account
Balance owner Owner
Sam Deficit $ 600
William Windfall $ 1000
Trust account balance $ 1.600
Now imagine a washing machine in one of the properties Sam deficit is down. Pipe breaks and there is water everywhere . When all is said and done, there is a bill for $ 800. But wait ... Sam deficit was not enough money in the trust account in favor of the project. What do you do ?
The wrong way - using someone else's money
Do not worry ... not enough money in the trust account to cover it. You pay the bill and deduct $ 200 ( $ 800 bill - $ 600 in cash) Sam next month when the rents come in. Of course , you are technically using someone else's money but things are reconciled next month so what 's the problem ? Well, for starters accounting software for small business , is a bad accounting. What happens when Sam is running deficits again next month? Will it continue to rob Peter to pay Paul ? If this is not sufficient reason we , here we go with the best reason not to , it's against the rules.
The wrong way again - use your own money
OK. So you can not use someone else's money . That makes sense, but if you use your own ? You only deduct, Sam next month. Since it is your money, you can do what you want , right? Wrong again . Do you really want to be in the lending business ? In addition , the mix of their own funds is almost always against the rules.
The right way - ask Sam for more money
The right way is to ask Sam for more money ? What ask for more money? He hired you to manage the property . He does not want to be disturbed by burst pipes and pesky bills. Do a quick review of the reality. Sam has hired you to manage the property and pay the bills in his name, but Sam still owns the property. This means that Sam is responsible for finding the money and pay the bills , not you.
Use the trust accounting
So what is the conclusion ? Open a trust account and using trust accounting . Bank account signature cards less means less opening new accounts and less time each month to reconcile the time. But it is easier for you. Knowing the rules and you get the right software. Before long, you'll wonder how you could do things differently.
