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Rental Owner FAQs Part 2 - Full Month Accounting

In today's video (Part 2 of Rental Owner Frequently Asked Questions) we discuss our accounting procedures - why we conduct Full Month Accounting - and what the benefits are to our owners. 

Don't forget to check out Part 1 - and stay tuned for more in this series! 

Transcription Results:

Hello, and greetings from Colorado Springs. My name is Lance Kohler. I'm the managing broker of the Cornerstone Real Estate team. Today I'd like to cover another rental owner frequently asked question -- Part Two of our series. Today's question is, “Why do you conduct full month accounting?” When we're interviewing potential clients or talking to our new clients, they often have a question, that is, “Why do we do full month accounting?” The technical term is full-cycle accounting. And that cycle for us is one month. What that means is, at the end of each month, we close out all our accounts.

We manage several accounts: we have a rental income account; we have a security deposit account; a sales account; et cetera. Those are all escrow accounts because we're holding other people's money. So it's very important that we keep track of those and that those accounts are accounted for correctly, as you can imagine.

We conduct a monthly close-out, and that is a series of steps that we conduct at the end of each month on each of those accounts to make sure we review, record, and reconcile any transactions in those accounts. We look at all income, we look at every expense and we make sure that our accounting ledger matches our bank ledger and make sure that everything is accounted for.

What that means for you the owner is that the first month that we rent your property there will be a delay (in you receiving an Owner Draw) because we're going to rent that property and close out those income and expenses at the end of the month, and then send your owner draw. For example, if we rented your property for the first time in the month of June, for Cornerstone, rent is due on the first we provide a grace period until the fifth. So that tenant pays us on the 5th of June, pays the rent for the month of June. We take that, and we're going to hold that and close out that account at the end of the month of June. And then we're going to send you your owner's statement for the month of June and your owner draw for the month of June no later than the 15th of the month of July.

What are the advantages of that? Well, one of the advantages to you, the owner, is that expenses are not often out of pocket. In that same example, the tenant pays us on the 5th of June for the month of June. If, on the 15th of June, we have to replace the oven in your property, we already have funds that belong to you in your account at Cornerstone; we don't have to call you or reach out to you to send us a check so we can pay for that oven. We have funds on hand. We can go ahead and take care of that expense, nothing out of your pocket. That again is then reconciled at the end of June and the remaining funds (the owner draw) will be sent to you no later than the 15th of July.

Another advantage is that our accounting is a hundred percent complete. It's a hundred percent correct before we send any funds out. So we are, again, closing out that account for the month of June, just like you would, if you were balancing your checkbook. And it's transparent to owners after that first month. So the first month, like I said, there'll be a delay, but after that, like clockwork, you'll be receiving your owner's draw every month to include the month after we stopped managing your property, for whatever reason. You'll still receive an owner draw that following month, if there are funds in your account, of course, but you know, the tenant pays rent. We'll send you those funds that following month. A disadvantage would be that delay in payment – but for that first payment only. Like I said, after that, it runs like clockwork every month, but there is that delay in that first payment.

Thank you for watching. Thank you for your time. I hope this was of interest and value to you. If you're curious what your property would bring in for rent, we do have a free market analysis on our website. It's listed as a Free Rental Price Estimate. You click on the front page of our website. We'll send that to you free of charge. If you have any questions, please feel free to reach out to us. You can reach us on our website, here at the office, or you can reach us on our social media accounts. Thanks again. Have a great day.