Money changes hands so fast in business that you might expect it to still have the last person's sweat on it.
Landlords know this all too well. They get rent every month and may have to pay a repairman at any time.
Not having a record of it all is a surefire way to send your real estate business into chaos. Read on to learn everything you need to know about owner disbursements.
What Are Owner Disbursements?
Owner disbursements are payments you receive from the earnings on your property. The amount is based on how much profit you make.
Types include:
- Rent
- Expense reimbursements
- Profits
- Late fees
- Pet fees
- Security deposits
- Application fees
Most property owners receive their disbursements monthly or annually.
Best Practices
Use the data from your owner disbursements to create owner statements. These are organized, detailed reports about your income, business expenses, and operating costs.
Set up a separate bank account for your rental property earnings and expenses. You don't want them mixing with your personal finances.
Set aside a fund for repairs and maintenance. Use it to fix small problems before they become an emergency.
Review your property cash flow regularly. You can identify where to cut costs and how to increase profitability.
This also helps with taxes. Rental income is taxable and needs to go on your returns. Look at your owner statements to see how much you have to pay and how to maximize your deductions.
Working Capital
Landlords are stereotyped as rich Scrooges swimming in money. Real estate investment creates plenty of passive income, but not all of it goes directly into your pocket.
46 cents of every dollar of rental income goes towards mortgage payments on the property. 27 cents goes towards operating expenses, 11 goes to property taxes, and 7 goes to employee payroll.
Only 7 cents is pure profit. There is a solution for times when that's not enough.
Owner disbursements can be turned into working capital. It helps you avoid taking on debt or diluting ownership.
REITs
You can also try another form of real estate investing known as a real estate investment trust or REIT. They hand out REIT disbursements.
A REIT owns or finances an income-producing property. They share the income with shareholders who don't have to manage the property.
You'll get a return on capital if you want all of or part of your investment in the REIT back. They are subject to capital gains taxes and additional fees.
Using Property Management
Real estate owners don't have to handle the process of owner disbursements themselves. A property management company can help them keep track of it all.
They'll withdraw owner disbursements from your earnings. You'll receive regular owner and disbursement statements to determine how the property is performing. They'll even help you comply with tax laws.
Where Can I Find a Property Manager?
Owner disbursements are payments or income from a rental property. Keeping track of them helps it remain as profitable as possible. A property manager can help you with this daunting task.
Five Star Property Management is a full-service company with a background in the tax and accounting fields. Contact us to see how we can maximize the potential of your investment today.