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Banking, accounting and property management -- best solution?

Undercard_Wonder
Mar 28, 2024 5:26 PM
Joined Nov, 2023 44 posts

Since I'm using OwnerRez, I'm using their "trust accounting model" for my property management clients.

Unless I'm missing a trick, while the accounting makes sense, the banking doesn't. It would seem, in order to keep everything straight, that I will need to open a new "trust" account for each client. Also, since I'm listing on Vrbo and have a private site as well, that I'll also need to open an account for each client on Stripe.

Banks don't like this. To them, multiple accounts means something fishy is going on. I'm being met with disbelief and obstacles.

How do other people manage this? Do you have one "trust account" for multiple clients?  Is there a bank that understands this and you like?

I'm a little stuck. I need to onboard clients and I've been delaying until I found a solution.

Thanks for anyone's help.

 

Steven C
Apr 1, 2024 4:38 PM
OR Team Member Joined Jun, 2021 6 posts

Hi Antony,

OwnerRez does not actually have Trust Accounting built in at this time.   However, using 3rd party tools like Quickbooks Online or Clearing, should help you maintain the ledgers necessary to facilitate a trust accounting model.   

I found this definition of Trust Account that explains things pretty well:

Trust accounting in property management refers to the process of managing and recording financial transactions related to rental properties on behalf of property owners or landlords. It involves the proper handling and documentation of funds received from tenants/guests, such as rent payments, security deposits, and other fees.

Trust accounting basically means having separate accounts for each property in one single banking account. Think of a trust account like a room full of safety deposit boxes. While your banking account holds all of the accounts, or ‘safety deposit boxes’, it allows you to go through and maintain them all individually. No need to worry about funds commingling with that of other property owners or even with your own operating capital and expenses.

As mentioned above, by using our integration to Quickbooks Online or Clearing, you can help ensure you have the proper reporting and documentation to keep the funds separate.  Our partner Clearing has this article that discusses in more depth how to actually setup bank accounts for the purpose of Property Management Trust accounting: https://www.getclearing.co/blog-posts/open-a-trust-account-to-manage-properties


In OwnerRez each listing can have a different payment processor so that funds can be sent to different bank accounts as required.  

Speaking of payment processors.  In addition to the two partner software I mentioned above, another layer of protection maybe to use a different payment processor.  As an example, Lynnbrook Group has a model where they keep the funds for each booking until the Guest Arrives.  This is simply called Payment Upon Arrival instead of Payment at time of Booking.   This way you never have access to the funds that should be in trust, and instead they would be paid to you when the guest arrives and thus the service has been provided.    By using Lynnbrook's Pay upon arrival, there are no real funds that need to be kept in trust.

In the end no one here at OwnerRez is an accountant.  So I would highly recommend speaking with an Accountant who is familiar with Property management best practices, especially if Trust accounting is a requirement by your local laws.

Undercard_Wonder
Apr 8, 2024 12:08 PM
Joined Nov, 2023 44 posts

Thank you Steven for your thorough reply.  Unfortunately it doesn't get to the heart of the matter.  I have a feeling, from looking at OwnerRez and all of the posts on various sites (Quickbooks help sites, Reddit) I am not the only one to run into this issue.

First, although OwnerRez is clear that you don't support a full trust accounting model (https://www.ownerrez.com/support/articles/property-management-overview#accounting), it is nonetheless also clear that the basic model is that of trust accounting:

1. PM takes in all the rents and fees and puts them into an account, which I'll call the Trust Account. To avoid any chance of co-mingling of funds, I have (as recommended by my accountant and everything I've read on the web) created a separate bank account for each Owner.

2. PM pays ongoing expenses out of its own operating account (not the Trust Account)

3. At the end of the period (usually a month), the PM does the following:

a. Generates a statement to the owner detailing the rents, fees, commissions, etc.

b. Pays itself its commission from the Trust Account

c. Pays the Owner their rents (less expenses and commissions etc) from the Trust Account

This model, while "clean" from an accounting POV, is a freaking nightmare from a practical POV:

-- REQUIRES at LEAST two overpriced subscriptions to Quickbooks (1) for the PM operating account and (2) for a "company" that holds the trust accounts.  (You could even make a case that each trust account needs its own "company" subscription to Quickbooks for bright-line separation of funds.)  I have a desktop version of QB where I don't have to pay a subscription for each "company", but at the price of multiple manual entries of everything.

-- REQUIRES a separate bank account for each trust account. I had to switch banks to avoid paying fees on each of these, and it took quite a while to find one with no fees that wasn't also a total fly-by-night fintech play, each with dozens of horror stories on Reddit. Even so, the bank I found has a limit of ten accounts under the same EIN, so if my PM business is successful I'll have an issue down the road.

-- If I want to avoid the QB Online subscription fees, which I (and every PM) very much do wish to avoid, REQUIRES manual entry of each expense and each rental amount received TWICE: (1) in OwnerRez in order to generate the Owner Statement; and (2) in the appropriate trust bank account

-- REQUIRES manual entry in my PM operating account (even with an overpriced QB Online subscription) of each commission payment *and* each and every expense incurred by me as PM on behalf of the property in question.

So, in sum, for this model to work, I am looking at either

(1) At least $80/m at current price to Intuit for QB Online for two "companies" (Operating Acct @$25/m + Trust Account for multiple properties @$55/m since I need class tracking), which even though they're online and connected to OwnerRez (another $15/m for two properties), requires manual entry of commission into my Operating Account and manual entry of expenses into each Trust Account, OR

(2) No extra fees to Intuit by using an outdated desktop version, which I happen to own, but other may not, BUT manual entry THREE times for all expenses, and lots of other manual entry.

These are two very bad solutions.

I get it that OwnerRez is not an accounting program, and that you may not have accountants on staff, but this is a LOT of work with a great deal of chance for error. Furthermore, finding banks that will let you open multiple accounts (one for each property) either with or without fees, is a real pain. Whether or not OwnerRez is in a position to solve these issues, I sure wish there was a lot more help just to understand the issues.

There are very few resources on the web for guidance either on the accounting side or the property management side (lots for longer-term rentals, very little for short-term rentals.

Given that OwnerRez customers are pretty much shoe-horned into this model (as opposed to, say, taking a straight % co-host payout from Airbnb), I would have hoped that there would be a LOT more help provided for novices like me.  Instead, none of these complications are flagged in advance, and once I dove in, there were no resources for me to follow to try to work this out.  The other companies you put forward don't help because they solve problems that aren't the ones I have, and they also charge fees.

I urge OwnerRez to do more to explain this and to help. It took me a long time just to be able to answer your answer coherently.  This a time-consuming and expensive pain in the ass just to move the exact same charges from software to software, with the possibility of error being introduced at every turn.

Stephanie F
2 days ago
Joined Nov, 2017 7 posts

I'm a licensed realtor/property manager and manage thirty condos other than my own two. You do not need a separate bank account for each property you manage. You need one trust account. For me, that trust account is in the name of both my broker and my company. At the end of every month, I pay my owners, my broker, lodging taxes and myself from that account. Not simple, but the OwnerRez PM statement, Tax Detail Report, and Owner Remittance Detail Report provide most of the info I need to accomplish this.  What is does not give me is the dollar figure of exact money in and money out which is a REAL pain since I have to get that number manually. In other words, what I need to know is that the money in period equals all of these distributions, No report provided that number as of now. Feel free to reach out if you need help.

Undercard_Wonder
2 days ago
Joined Nov, 2023 44 posts

Thank you, Stephanie, that's an extraordinarily kind offer.  I'd be more than grateful to take you up on it. I don't know how to communicate privately on this platform, and I hesitate to leave my information on a public site. I"m really interested in seeing a good chart of accounts, and understand how you book everything. 

Thanks also for pointing me to the PM reports, which I was ignorantly unaware of.  Those certainly fill some of the gaps.

Do let me know how to reach you if you can think of a way.