1. Foundations of Real Estate Management BOMA International ® Module 2: The Well-Versed Real Estate Manager Accounting and Reporting ®

2. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 2 ® Objectives  Differentiate between accrual-based and cash- based accounting methods  Illustrate technique for collecting accounts receivable balances from tenants  Describe purpose of these documents: chart of accounts, balance sheet, income statement, general ledger, check register, rent roll, tenant ledger/aged accounts receivable report, security deposit ledger, cash receipts journal, executive summary, variance report, and stacking plan

3. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 3 ® What is Accounting?  Double-entry accounting  Journal entry  Debit  Credit  Purposes of financial statements  Typical accounting formats  Cash-based accounting  Accrual accounting

4. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 4 ® Cash-Based Accounting  Income recorded when received  Expenses recorded when check is cut

5. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 5 ® Accrual-Based Accounting  Income recorded in month earned  Regardless of when check is received  Expenses recorded in month incurred  Regardless of when check is cut  Requires monthly accruals by manager

6. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 6 ® Internal Control  Goals:  Efficiency/accuracy  Policy adherence  Safeguard assets  Avoid fraud/error  Internal control policies and procedures

7. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 7 ® Internal Control  Authorization levels  Audits  Supervisory audit  Operational audit

8. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 8 ® Collecting Rents/Accounts Receivable Collections  Crucial responsibility for PM  Grace period  Lockbox service  Wire transfers

9. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 9 ® Best Practices for Collecting Rents  Ask tenant to cut check before end of month  Route invoice to the right entity  Generate invoices earlier in month to give tenants more time to respond  Consider e-mailing invoices (pdf) to tenants  Understand tenant’s payment process  Understand late payment penalties in lease

10. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 10 ® Collection Efforts  Late fee  Interest  Default  Cure period  Collection suit  Eviction The collection process may be different in each jurisdiction

11. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 11 ® Collecting Rents/Accounts Receivable  Resolving accounts receivable issues  Overpayment  Underpayment  Goal: No tenant ends the month with a balance

12. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 12 ® Delinquencies  Every situation is different  Excellent payment history  Flawed payment history  An excuse  A potential bankruptcy  Sometimes, employees and vendors can alert you to problem

13. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 13 ® Other Collection Issues  Bill-backs  Tenant adjustments

14. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 14 ® Paying Bills/Accounts Payable Cash flow  Funding request  Typical property level bank accounts  Depository account  Operating account

15. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 15 ® Vendor Relations Vendor agreements  Never spend more than you can pay  It’s not fair to hold your vendors hostage because of your property’s cash flow problems

16. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 16 ® Building a Rapport with Your Accountant  Provide back-up details for invoices  Keep accountant’s deadlines in mind  Set up a mutually beneficial accounting calendar  When your accountant does something extra, show your appreciation  Give accountant a tour of your building or send photos

17. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 17 ® Types of expenses Operating expenses  Payroll  Repair and maintenance  Contracts  Real estate taxes  Insurance  Utilities

18. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 18 ® Types of expenses Non-operating expenses  Landlord costs  Marketing for vacancies  Utilities for vacancies  Space planning  Mortgage

19. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 19 ® Types of expenses Capital Expenses  Examples  Real estate commissions  Tenant improvements  Building improvements  Assets of the property  Recorded on the balance sheet  Not repairs or maintenance

20. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 20 ® Accounting Reports System-generated reports  Chart of accounts  Balance sheet  Income statement  Trial balance  General ledger  Check register  Rent roll  Tenant ledger/aged accounts receivable  Security deposit ledger  Cash receipts journal

21. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 21 ® Accounting Reports Property manager-generated reports  Executive summary  Variance report  Stacking plan

22. Foundations of Real Estate Management Module 2: The Well-Versed Real Estate Manager 22 ® Putting it into Practice Work with your instructor to complete the exercise in the workbook