Common Pitfalls of Accounting for Vacation Rental Property Managers
Accounting for vacation rental property managers can be tricky with trust accounting, owner statements, advance deposits, security deposits, refunds and more. Below are some common pitfalls that if avoided, should make accounting for your vacation rental management company much easier.
Not Using Tracking Categories.
Likely the most common pitfall is using separate accounts to track properties instead of tracking categories (i.e. locations or classes in QuickBooks). Using separate accounts instead of tracking categories creates several challenges, including difficulty setting up owner/property reporting and banking rules. In addition, if you use a PMS that syncs with QuickBooks or another accounting software, the setup will not work without the use of tracking categories. If you are already using separate accounts instead of tracking categories don’t despair, it can be changed, but it is HIGHLY recommended to get experienced help in making this transition.
Not Using Escrow/Trust Accounts.
Many states regulate the use of escrow accounts to hold advance deposits and monies held on behalf of owners. If not using separate escrow accounts to hold these funds, “commingling” of funds occurs and can result in heavy fines and even loss of a business license. States differ in their requirements, but several require two escrow accounts, one for advance deposits and another to hold “earned rentals” after a guest departure, but before the payouts to the owner and property manager. Use of “Rents-in-Trust” banking sub-accounts by property in QuickBooks or Tracking Categories in Xero is important to track funds in the escrow accounts by property. While this tracking can be tedious, it is key to properly accounting for vacation rental property managers.
Not Consistently Using the Escrow or Operating Account for Property Expenses.
As discussed above, tracking funds in the different escrow accounts can be tedious. In order to make this process simpler, its best practice to use one (escrow or the operating account) to pay for expenses on behalf of the owner. This saves a lot of headache when trying to determine what expenses are reimbursable to you as the property manager and which ones are not.
Not Deferring Rental Deposits.
A key concept of vacation rental property management accounting is that rental deposits received in advance of the guest stay should be deferred. These amounts should be held in the “Rents-in-Trust” escrow account and recorded as a liability (deferred income) on the balance sheet until the date of the guest stay, typically in a “Rents-in-Trust – Rental Deposits” account. Use a rental deposit invoice on the date the deposit is received. Use a rental invoice that details the guest charges (rental income, cleaning fees, taxes etc.) with a negative rental deposit to reverse the deposit on the date of the guest stay.