A property management software is designed to perform both financial management and record maintenance activities. It is a cost-effective solution that is increasingly becoming popular due to its vast array of easy-to-use inbuilt features.
Property management is the name given to the supervision and management of residential and commercial premises. A professional property manager works both as a controller and as a field manager. Field management is a broad term, which involves everything from supervision to purchase. Property management software was designed to help both managers as well as landlords handle various aspects of this process. These software tools aid the process of management, but cannot be used as a substitute for actual managers.
There are a number of property management kits available in the market. One must remember that the software purchased should suit our specific purpose. For instance, if one owns a commercial premises, say a warehouse, a good software should provide advanced inventory management tools. In case of a motel business, the software should help speed up the process of check in and reduce the time required for check out. While in case of a residential premises, the software should provide an easy means of keeping track of tenant records.
Every software for property management performs certain common functions in addition to providing specialized services. Rental property management software is one of the most commonly used accounting software applications. It has the following features: Financial Management and Record Maintenance.
Net Rental Income
Let us take the example of a rental property. The tenants pay rent on a monthly basis. In exchange, the management is expected to provide certain services. The following expenses are incurred on any rental property: service charges, amount allocated to sinking fund, fire insurance costs, repairs, and a few other costs. The cost of these services is deducted from the gross rental income paid by the tenant to arrive at the net rental income figure.
Total Cash Flow (TCF)
One would assume that the net rental income is the same as cash flow. However, this is not so. Net income has a number of other non-cash charges that have to be added back to obtain the total cash flow. Non-cash revenues must be deducted from the net income in order to arrive at total cash flow. We also need to add any decrease in working capital to the net rental income and subtract any increase in working capital from the net rental income, to arrive at the total cash flow.
Components of TCF
Total cash flow has three components: cash flow from operating (CFO) activities, cash flow from investing (CFI) activities, and cash flow from financing (CFF) activities. Expenses, like, repairs of a routine nature, can be classified under operating activities. Building a new fire escape is an investment, while the funding of this investment is a financing activity. It is possible that the net rental income is positive while the operating cash flow is negative. This is not desirable, since it would imply that the business is unable to meet its operating expenses on a timely basis.
The rental yield is a measure of the profitability of the investment. It is calculated using the following formula:
Rental Yield = (Net Rent*12/Purchase price)*100
The higher the rental yield the better the return on investment. In other words a high rental yield denotes a successful investment.
A property management software can simplify our lives by maintaining all the necessary financial statements, viz., the income statement, the statement of cash flows, and the balance sheet. Net income is obtained from the income statement, the statement of cash flows provides the TCF, while the balance sheet presents the assets and liabilities.
The property management software also provides tips for saving taxes by using the rental deductions to our advantage. Maintaining financial statements is necessary for the purpose of filing tax returns at the end of the year.
Maintaining Records and Generating Reports
Maintaining tenant records is relatively simple, but depending on the volume of activity, it can become cumbersome. Tenant records are a must since they indicate the terms of the lease. Renewing the lease agreement, sending an eviction notice, keeping track of the dues, and sending a notice in case of late payments are some of the benefits provided by the property management software.
The right property management software is a great boon to any property manager. It is also useful to the owner who in due course of time can become proficient in various aspects of management, through the rigorous use of such software.