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It is no secret that the California real estate market is booming. However, there have been more ups and downs in the last year.
For this reason, property owners must be meticulous in their planning and budgeting. Owner disbursements are a big part of this.
Staying on top of owner disbursements is vital to the financial health of your business. Fortunately, there are some basic policies you can put into place that will help you do so.
Below is a comprehensive guide to owner disbursements. Keep reading to find out how to keep your real estate business's finances in check.
What Are Owner Disbursements?
Owner disbursements refer to the process of distributing profits from a real estate investment to the owner or owners of the property. These can take various forms, including cash withdrawals, checks, or transfers to the owner's bank account.
Owner disbursements are a regular part of a real estate business's expenses. That is because they represent taking out their part of the investment profits.
What Is Owner Disbursement Management?
Effective owner disbursement management involves budgeting for owner disbursements and keeping track of records. This is important for many reasons. These include transparency, financial planning, internal controls, and tax purposes.
Owner Disbursement Best Practices
There are a few things a landlord can do to effectively manage property owner payments. Here are the main ones to put in place today.
Set Clear Policies
Establishing solid policies for owner disbursements is a good place to start. These include plans and rules regarding the frequency, amount, and purpose of owner disbursements.
For instance, you might consider setting maximum-withdrawal limits. Another example is a rule that requires additional approval for larger disbursements.
Keep Disbursements Separate
Next, make owner disbursements a distinct line item in your budget. If possible, set up a separate bank account dedicated to disbursements.
In short, these withdrawals should never cut into operating or other expenses associated with the business. This extends to paying the salaries of staff, including the property manager. Funds should also be completely separate from those allocated to contractors or grounds maintenance crews.
Maintain Meticulous Records
Regardless of your accounting setup for handling owner payouts, it is important to keep detailed records and produce regular financial reports. This is vital for tax purposes, but it also is good business practice. Using accounting software is a great way to keep track of everything going in and out of each account.
Hire Professionals
It can be advantageous to consult professionals, such as financial advisors, to help set up structures for disbursements. This also can help ensure transparency and compliance with tax laws, as well as provide many other benefits.
Get Further Property Management Disbursements Advice
Now that you understand the basics of owner disbursements, you can ensure transparency and accuracy in your business's accounting practices. An experienced real estate company can advise you on policies that can help you better manage rental income.
Harland Property Management provides the highest level of real estate services to the San Diego area. We offer a variety of resources, including accounting and financial management. Reach out to us today for assistance with owner disbursements or other rental income distribution questions.
