You may have considered the benefits of owning rental property and for good reason, on average owners can make upwards of $100,000 per year.
That is a hefty stream of income without even selling property, but If you don't know how property accounting works, you could be losing out on money you could be earning.
Understanding owner disbursements is crucial especially when tax time rolls around. Owner disbursements refer to the payments made by the rental property owner to themselves, from earnings generated by owning rental property.
Fortunately, a property management company can manage your owner disbursements and simplify the whole process.
In this article, we will discuss owner disbursement, including the types of owner disbursements, how to calculate them, and best practices for disbursement management.
We will also explore how property management software can help, so read on to learn more.
Owner Disbursement Basics
Owner disbursement is the process of distributing funds or profits to the owner(s) of a property.
Unlike a business expense, this amount is based on the rental earnings retained as the rental property owner's profit, such as rent, business expense reimbursements, and profits. When you rent out your property, owner disbursements are payments you receive from the earnings of your property.
Effective disbursement management involves keeping accurate records, understanding tax implications, and allocating funds for costs such as repairs and maintenance.
A property management company can help you figure out your owner disbursements and provide you with regular owner statements.
What Are Examples of Owner Disbursements?
As a property management company or landlord understanding the different types of owner disbursements is key to your success. The following are the most common types:
Rental Income: This is the amount paid by tenants to the landlord, rental property owner, or management company for the use of the property. It is the primary source of revenue for an owner.
Expense Reimbursements: These are payments made by the landlord or owner to cover costs incurred while managing the rental property, such as repairs and maintenance.
Profits: This monthly balance is the amount left over after expenses have been deducted from the monthly balance of the rental income. It is the profit earned by the landlord from owning rental property.
In addition, there are a few other types of owner disbursements that you may encounter:
- Security Deposits
- Late Fees
- Pet Fees
- Application Fees
How to Calculate Disbursements
Another way you can ensure your success as a rental property owner and calculate your disbursements is to keep accurate records of all transactions related to your property, this includes:
- rental income
Remember to include any other costs associated with the property. By doing so, you can have a clear understanding of your rental property's financial performance and identify areas where you can reduce costs and improve profitability.
Do Landlords Pay Taxes on Rent Received?
Yes, landlords are required to pay tax on the rent they receive from tenants which is considered taxable income by the government, and landlords must report it on their tax returns.
This is why it is so important to keep accurate records to ensure you pay the correct amount of tax and maximize your deductions.
Best Practices for Disbursement Management
It is extremely helpful to have an organized clear system in place to manage disbursements effectively. Below is a checklist of best practices to help you manage your disbursements:
- Setting up a separate bank account for rental finances to keep your rental finances separate from your personal finances.
- Keeping accurate records of all transactions related to the property.
- Creating a system to track expenses to avoid missing out on potential tax deductions.
- Reviewing monthly cash flow statements to identify potential issues and ensure that your property is generating a positive cash flow.
- Allocating funds for repairs and maintenance to ensure that your property is well-maintained.
- Calculating your profits regularly to monitor your rental property's profitability.
- Understanding tax implications and complying with tax laws to avoid legal and financial consequences.
Owner REIT Disbursements
Business owners can also receive income from their ownership in a real estate investment trust (REIT) through owner REIT disbursements.
REITs are companies that own or finance income-producing real estate properties and distribute at least 90% of their taxable income to shareholders in the form of dividends.
As a result, owners of REIT shares can receive regular disbursements of income without having to actively manage properties themselves.
Owner REIT disbursements may be subject to taxes and other fees, so owners should consult a financial advisor or tax professional before investing.
Using Owner Disbursements as a Source of Working Capital
By using capital gains and owner disbursements as working capital, businesses can avoid taking on debt or diluting ownership by selling equity.
However, it's important for property owners to carefully manage their disbursements and ensure that enough capital remains in the company to support its ongoing operations and growth.
Benefits of Hiring a Property Management Company
The process of receiving owner disbursements can differ depending on whether you choose to manage your rental property yourself or hire a property management company.
Once you receive rental incomes from your tenants, you can withdraw owner disbursements from your earnings.
However, a property management company can help, they will take care of these tasks for you and provide you with regular owner statements and disbursement statements ensuring compliance with tax laws.
Owner statements keep an organized record of important metrics such as income, expenses, and operating costs. These reports also include opening and closing balances and give landlords clarity about how their property is performing. They are often part of a larger report called a property management report.
As a property management company, it can be challenging to know how to generate this report.
With DoorLoop's owner reports feature you can easily create a property management report allowing property managers to quickly and efficiently provide owners with important information and insights about their properties. This is especially helpful when you own or manage multiple properties.
Besides the owner statements a property management report will include the following:
- Income and Expense Reports
- Owner Statements
- Operating Statements
- Account Ledger Report
and possibly more.
Why Property Management Software Can Be Helpful
Property management software for disbursements can help property management companies and owners save time, improve financial management, and build stronger relationships. Below are the best features to look for in management software:
- Automation: The software should be able to automate rental collection and the disbursement process, ensuring that payments are made on time and accurately.
- Security: The software should have strong security measures in place to protect sensitive financial data.
- Integration: The software should be able to integrate with other systems, such as accounting software like QuickBooks or payment processing systems, making it easy to keep your financial records up to date and accurate.
- Customizable Reporting: The software should provide customizable reporting capabilities, allowing you to track disbursement activity and identify trends and issues.
- Streamlined Communication: The software should have a central hub for improving communication between property managers, tenants, and property owners
DoorLoop's Owner Portal
Managing rental collection and owner disbursements can be time-consuming and overwhelming but Doorloop's disbursement and property management reporting features offer a streamlined solution.
DoorLoop's secure online owner portal allows owners to conveniently access their property's up-to-date financial information and property management reports. This feature promotes trust and transparency enabling property management companies to communicate effectively with owners about their properties.
With DoorLoop's automated distribution direct deposit feature, you can sync your bank directly with DoorLoop. Allowing property managers to seamlessly handle owner disbursements by either printing checks directly from the software or sending payments directly from their bank. This simplifies the property management process, helping to save time and reduce costs.
Doorloop tracks all of your expenses related to your rental properties, including maintenance and repair costs, utilities, property taxes, and insurance. This gives you a complete view of your financial situation on one or more than one property and helps you stay on top of your expenses.
Reduce confusion and misunderstandings and stay connected with your tenants, vendors, and other stakeholders with DoorLoop's various communication tools. From text messaging and email campaigns to automated messaging, DoorLoop makes it easy for property managers to communicate with tenants and owners. Don't miss out on the opportunity to simplify your property management processes.
Let DoorLoop help you take your rental property business to the next level. Get a free demo of DoorLoop today. Visit Our website and take the first step towards efficient and effective property management.