Why You Should Not Use Excel For Accounting

First, let me confess that I love Excel. Having used Excel for years, I’m fully aware of its strengths, and will continue to use it to create spreadsheets, graphs, and tables. But for some unknown reason, there is a small group of property managers that continue to extol the benefits of using Excel as their primary accounting software.

I have to admit that this has me stumped. The accounting software of today in no way resembles the awkward software of yesterday. Today, most software products are designed with the end-user in mind, and include easy system navigation, intuitive data entry screens, and system tutorials to make it easy to learn your way around the system.

If you’re using Excel to run your property management business, you may want to consider the following:

Excel’s Primary Functionality is NOT Accounting – Excel’s primary function is creating spreadsheets, not processing transactions, or producing financial statements. Yes, it can be used for those things, but typically with accounting software; not in place of it. As a result, users will spend an inordinate number of hours entering Excel data manually, because it does not have the capability to share data. So anytime your tenant pays rent, you’ll be posting that payment in your checkbook, your accounts receivable journal, and your tenant record. With regular accounting software, you post it once.

Propensity for Errors Increases – The lack of a central database and no double entry accounting system in Excel also means a lot more repetitive data entry. And each time you have to re-enter the same data, the likelihood of making an error increases dramatically. Also consider that without the safeguard of a double entry accounting system, it’s very easy to end up with out of balance accounts.

Lack of a Reliable Audit Trail – Accounting software has become valuable to business owners because of the ability to ensure that data is accurate and secure. Excel offers no such protection; meaning that formulas can be changed, entries accidentally (or purposely) deleted, and transactions erased, all without leaving a trace of the original entry behind.

Ease of Use – or Lack Thereof – While it’s fairly simple to create spreadsheets in Excel, making it a functioning accounting program requires another level of skill that most Excel users will never attain. Creating an invoice, printing a statement, or processing a financial statement in Excel can take up valuable time, while accounting software allows you to create those items in minutes.

While Excel will continue to provide a valuable benefit to property managers, it can provide many more benefits and less headaches by using it for what it was designed to be.

Audrey Wardwell, Broker/Owner
36 North Properties, Inc
CalBRE: 01746254
www.36northpm.com
p: 831-320-7116
f: 831-309-5584

 

 

 

 

Posted on 19. Feb, 2014 by in Business

2015 Rental Market Report

2015 Rent.com Rental Market Report

2015 Rent.com Rental Market Report

October 7, 2015 | Rental TrendsRental Trends and Real Estate News

The seventh annual Rent.com Property Owner and Manager Market Report captures trends in the rental market directly from apartment property managers nationwide.

In the 2015 survey, more than 500 property managers in the U.S., representing thousands of rental properties, and hundreds of thousands of rental units, provided insight on the current and predicted demand for rentals, expected rental rate increases, how property managers are working to retain residents, and the changing demographic profile of American renters.

Rental Inventory Near 20 Year Low

This is the lowest that vacancy rates have been in almost 20 years! According to the U.S. Census, national vacancy rates in the second quarter of 2015 were 6.8% for rental housing, down nearly a full percentage point (from 7.5%) from the same time in 2014. The last time vacancy rates dipped below 6.8% was the fourth quarter of 1985 (6.7%).

Since Rent.com’s first Property Owner and Manager Report in 2009, property managers have reported a steady decrease in vacancy rates, and 2015 is no different. This year, more than 46% of property managers surveyed reported a decrease in rental vacancies.2015 Rent.com Rental Market Report - Rental Inventory Near 20 Year Low

According to Census data, vacancy rates for rental dwellings have fallen steadily since they hit a high of 11.1% in the third quarter of 2009, at the height of the U.S. housing bubble burst.

Fewer Vacancies Leave No Room for Negotiation

As the rental market continues to become more saturated, property managers are having to do even less in order to fill apartment openings.

In 2015, 55% of property managers said that they are less likely to offer concessions or lower rents in order to fill vacancies than they have been in years past. In fact, 64% reported that they are not doing anything different from one year ago, in order to fill vacancies.2015 Rent.com Rental Market Report - Fewer Vacancies Leave No Room for Negotiation

With multiple applicants vying for the same apartments, more than half of the property managers surveyed (54%), noted that it is taking roughly the same amount of time to convert leases, while 33% stated that it is taking even less time, compared to last year.

It’s Less About the Renter, and More About the Benjamins

Despite the fact that property managers currently have the upper hand in the leasing process, 56% reported that the increased demand has not made them become more selective about potential renters.

In fact, only 17% reported that they have become more selective about who they rent their apartments to, regardless of increased demand and limited inventory. Higher credit scores, higher income-to-rent ratio and excellent rental history rank amongst the top requirements from property managers.

What do they care about when it comes to who is leasing their apartments? Money. While they might not be more selective in their screening process, property managers still care about getting top dollar for their properties. In fact, 53% of property managers said that they were more likely to bring in a new tenant at a higher rate, than negotiate and renew a lease with a current tenant that they already know.2015 Rent.com Rental Market Report - It's Less About the Renter, and More About the Benjamins

Expect Rates to Rise by 8% in 2016

An overwhelming 88% of property managers raised their rent in the last 12 months, and there does not appear to be any signs of stopping.2015 Rent.com Rental Market Report - Expect Rates to Rise by 8 Percent in 2016

68% of property managers predict that rental rates will continue to rise in the next year by an average of 8%! This is a two percent increase over the estimated 6% rent hike predicted by property managers back in 2014. 2015 Rent.com Rental Market Report - Expect Rates to Rise by 8 Percent in 2016 !

Unsurprisingly, increased demand and low inventory were the primary reasons for increasing rental rates over the last year, according to 64% of property managers surveyed. Property maintenance costs and remodeling fees were also cited as primary drivers of rental increases (44%).

Renters are Struggling to Make it on Their Own

As a result of skyrocketing rental rates, 43% of property managers reported seeing an increase in the number of applicants who do not meet the income requirements on their own and require a guarantor.2015 Rent.com Rental Market Report - Renters are Struggling to Make it on Their Own

Millennials Deferring Home Ownership and Opting to Rent

Millennials face limited job availability, lower incomes and high student loan debts, making it more affordable and flexible to rent. In fact, 45% of property managers have noticed an increase in the number of millennial renters.

2015 Rent.com Rental Market Report -Millennials Deferring Home Ownership and Opting to Rent

Homeowners are Trading in Mortgages for Leases

More than half of all property managers surveyed (54%) reported seeing an increase in the number of former homeowners seeking rental apartments, thus adding to the already crowded rental space.2015 Rent.com Rental Market Report - Homeowners are Trading in Mortgages for Leases!

This is an increase from 2014, where only 50% of property managers reported seeing this same trend.

Existing Renters Not Giving Up Their Leases

Renters also appear to be staying in their apartments longer, adding to this supply/demand imbalance!2015 Rent.com Rental Market Report - Existing Renters Not Giving Up Their Leases

According to property managers, 34% reported that renters are holding on tight to their apartments and renewing their leases (up from 29% in 2014), rather than trying their luck elsewhere.

Methodology: The survey was conducted among more than 500 of Rent.com’s property management customers, representing thousands of rental properties, and hundreds of thousands of rental units.

 

Rental Property – How to Project Cash Flows and Returns

If you are thinking about buying some rental properties as investments, you should probably understand how to project cash flows and evaluate the investment returns you hope to achieve on your hard earned invested cash equity.

There are really two types of returns that we can earn on investment property, first is appreciation in value which is the most common hoped for return. Secondly, and much more important but generally overlooked by investors, is the cash flow picture the property will generate.

The vast majority of investors buy real estate with the hope that it will go up in value. This is really a big mistake because many properties, particularly the prize “location, location, location” properties have corresponding negative cash flows on operations that may negate any true increase in wealth from one’s long term appreciation in value.

So a savvy investor needs to look at the cash flow picture and buy properties with positive cash flows, not negative cash flows. As an example of this in Monterey, one could buy a nice condominium for $500,000, which would rent for about $2,300 per month. That rent, minus all the maintenance expenses, HOA fees, insurance, property taxes, and mortgage payment would have a deficit on cash flows of about ($1,000) per month, or ($12,000) per year.

So while a buyer is hoping some appreciation in value will earn him or her a fair rate of return, that appreciation has to additionally compensate for all the money he has to take out of his savings to cover the negative cash flows. Those negative cash flows, on this example, could span several decades and hundreds of thousands of dollars before the property turns positive.

Alternatively, there are many properties that cash flow positive from day one as an investment. A moderately priced house or condominium unit, only a few miles away from downtown in the $150,000 price range, might generate $1,200 per month in rent and positive cash flows of $225 per month. That’s $2,700 per year of positive cash flow. As a side note – the appreciation in value, over the long term, will probably be similar on both properties anyhow. So why not go for cash flow plus appreciation in value!

To calculate a cash on cash return, we divide that $2,700 positive cash flow by the cash equity we invested, maybe $40,000 on the $150,000 property for a cash on cash investment return of 6.75% on our money. And that’s a really good deal! Especially compared to the fancy prize condominium that might generate a negative (8.5%) return on our invested equity.

As a long term investor, I can assure you that positive cash flow properties, so properties that pay all the bills and provide a rate of return on your money, are much better investments than negative cash flow fancy prize properties that just drain money from your bank account. Hopefully you’ll understand this concept before you buy that prize!

Posted on 29. Nov, 2012 by Leonard Baron in Real Estate

The Advantages of Offering Month to Month Leases

While all properties are not well-suited to offering month to month leases, there are a variety of reasons why it would prove profitable for property managers to investigate the possibility of doing so. In many high profile, urban areas, or in cities where international corporations are located, month to month leases are considered a necessity. While residential communities in smaller cities and rural areas may not be a perfect fit, it may be worth investing some time into considering whether the benefits of offering month to month leases are worth the cost. Here are the reasons why properties should consider this option:

You can legitimately charge a much higher rental amount per month. Of course, your property should be located in a metropolitan area or near company headquarters; in essence any place that attracts a lot of transplants. Cities like Chicago, Boston, and Las Vegas commonly offer month to month leases at a premium price. Renters get the benefit of a conveniently located apartment community while property managers are able to charge month to month renters premium rents.

It’s a great way to attract quality, future tenants. If your month to month rentals are happy where they are, they may consider signing a lengthy lease, providing you with a reliable tenant.

It becomes easier to set up partnerships with local corporations and businesses. Local businesses are happy to direct their newly relocated employees with a safe, convenient place to live. Work out a deal that will be good for both of you.

There are some disadvantages to renting units short-term, the most potentially costly being excessive wear and tear on the short-term units. It’s also important to note that many short term renters have less of an investment in a property short-term than they do when they’re staying for a year, so the possibility of damages may increase in these units. Offering month to month rentals will create more paperwork for your office staff. Maintenance staff will also be busier with unit repairs, maintenance and cleaning.

While offering short term rentals is not a viable option for all properties, if your property is situated in a high-profile area, it may benefit your property and your bottom line to consider offering month to month rental agreements.

Posted on 03. Dec, 2012 by Mary Girsch-Bock in Business