Letting Agent Accounting Entries

Letting Agent Accounting entries

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Hi

I have a  new business as a letting agency.  I will be receiveing rents from the tenants and then taking off management fee and passing the residue to the landlord.  I don't have a separate client account so all rents will be going into business bank account.  How do I account for the rent coming and then going almost straight out less the fee so that it doesn't show as income please?

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paddle steamer
By DJKL
05th Oct 2016 13:35

Software:

Given the volume of intromissions you will likely need, to scale to any reasonable size, letting agency software is needed; without it you will be in a mess very quickly.

The absence of a client account is not clever, given the amount of regulation coming into the property letting industry I would sort; not sure legal position at present but only a matter of time before it will be a legal requirement to have a distinct account.

I hate to say that by your question you do not sound like you have much experience in the industry, I presume you appreciate there is a bit more than merely collecting the rents and passing to landlords less fees, if that was sum total of effort then commission rates would not be what they are; do you have the necessary skills to advise your landlords re their legal obligations?

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By hettydehaan
05th Oct 2016 13:47

Thank you for your reply we are opening a client account but HSBC have said they cannot get a business manager to see us for 2 months!
I have a great deal of experience in the industry and am well aware of what it entails, I was just asking a simplistic question for the accounting entries, nothing else

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Replying to hettydehaan:
Red Kite
By Red Kite
05th Oct 2016 16:24

Thank you for your reply we are opening a client account but HSBC have said they cannot get a business manager to see us for 2 months!

What utter crap. Presumably, your "other" - general account is with HSBC? Other banks are of course available and, from what your apparent requirements are, you would be well advised to approach one.
Next you'll be saying that it's the Barking branch - barking mad that is.

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By hettydehaan
05th Oct 2016 13:47

Thank you for your reply we are opening a client account but HSBC have said they cannot get a business manager to see us for 2 months!
I have a great deal of experience in the industry and am well aware of what it entails, I was just asking a simplistic question for the accounting entries, nothing else

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Replying to hettydehaan:
By johngroganjga
05th Oct 2016 14:48

Well if you are going to take the risk of operating without a client account - good luck.

The accounting entries though are the same whether the money goes through a client account or an office account.

Client money coming in is credited to the client's ledger account. Money going back to the client is debited to the same place. Your fees being paid out of client money are debited to the client's ledger account and credited to your income account / VAT etc.

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paddle steamer
By DJKL
05th Oct 2016 14:47

Well, in effect correct software will debit bank and credit liability (landlord account)

Commision and vat will debit landlord account (total) and credit commission and credit output vat

Payment for outlays will debit landlord account and credit bank.

Payment to landlords will debit landlord account and credit bank.

You really do want software that will post/allocate these intromissions.

Where a client account is used the transfer of commission and vat can often usefully be dealt with as a composite transaction:

Dr firm account
Cr client account
Dr landlord account
Cr commission
Cr output vat

The ideal being that client account balance is equal (or greater if float maintained) to the sum of landlord balances due.

Beware bank charges to client account, you either need to switch these between bank accounts or arrange for bank to charge to firm account in first place.

Software may also help control tenant deposits switched to one of the schemes for holding same. (record who with etc)

It may also deal with statements to landlords and assist re controlling non resident landlord withholding of tax and also the annual statements for HMRC which now abound for all landlords.

It may also assist giving landlords an annual statement to assist them (and their accountants) re their tax returns.

Finally it can help control leases/tenancy agreements, keep records re inspections and inventories,record PAT tests/gas tests, remind re myriad property management tasks ,deal with managing HMO licences and also general landlord registration details (if appropriate)

Accordingly I would concentrate on finding appropriate software and the debits and credits ought, if software properly used, take care of themselves

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Replying to DJKL:
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By PaulHarsley
12th Jan 2019 09:25

Are their any free or low cost software you would recommend?

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Replying to PaulHarsley:
paddle steamer
By DJKL
12th Jan 2019 12:49

No, not really,you get what you pay for in the industry.

A lot of software floats around being a glorified cashbook system, catch is it is backward looking, it only records transactions after payment or receipt made, this can be problematic if say paying funds to landlord but outlays to be deducted not yet settled, you end up in effect overpaying them and carrying the costs yourself until recovered or delaying paying suppliers until in funds next month which may well lead to a future poorer service to tenants and landlords re repairs etc as tradesmen do not make you a priority- I pay all our smaller tradesmen within days of receiving their invoices so they turn out for us knowing they will not be left chasing payment-goodwill gives good service.

I reviewed in passing similar type software for my employers to use last year, one was not too expensive and might have worked, the Nominal Ledgerpostings it created for the business would have been fine if operating on a cash basis re accounts but our business requires accruals accounting, it was agent software that might have been adaptable re managing own property let, but just did not hit all the buttons.

In addition the admin chores of operating, chasing overdue rents etc, will likely not be dealt with by low cost software, a good link from diary/task functions from software is very helpful, planned repairs useful- what we ended up buying allows say plans, warrants, property titles etc to be scanned and attached to property file in the software, photos say re past roof repairs can be added so we can control what has happened in past, what likely needed in future re maintaining the property etc

If you want a professionally managed business, software that records what is due in, chases by automatic systems what is overdue, prompts re remitting funds out to Landlords and re tasks/chores required, they you will need to pay, the plus point is you will possibly save the money expended and more by reduced ongoing staff costs, one member of staff and a really switched on system can likely be more productive than two members of staff and a heap of junk.

For info we went with Landmark, but we are not really an agent, we lease and manage our own commercial property portfolio.

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