Apartment Building Bookkeeping: How the Books for a 5+ Unit Building Work, Month by Month

What is apartment building bookkeeping?

Apartment building bookkeeping is the monthly record of one building's rent, deposits, bills and loan. It shows what the building earned and where the cash went.

It answers 2 questions every month: did the building make money, and where is the cash? The 2 answers are different numbers.

A condo or homeowners association keeps its books differently. That guide is HOA accounting explained for board members.

What is different about the books of an apartment building with 5 or more units?

A building has a rent roll, deposits owed on many units, a loan with reserves, staff, and shared utilities. Each one needs its own record, and the building needs its own P&L.

• A rent roll. One line per unit, so rent due is known before rent arrives, and every gap can be named.
• Deposits owed on many units at once. For 47 rented units at $750, that is $35,250 of cash that is not yours.
• A loan payment that includes escrow and reserve deposits as well as interest and principal.
• Staff on site, so payroll is a cost of the building.
• Shared utilities, some of them billed back to tenants.

Each one gets its own section below, and its own page under this guide.

How is the money coming into an apartment building recorded?

Start with the rent roll, which lists what each unit owes. Record what was collected, then name every gap between rent due and rent banked: vacancy, late rent and move-in specials.

The rent roll says what each unit owes. Whether that money reached the bank is a separate question, answered in rent roll vs bank statement.

How is money held for an apartment building's tenants recorded?

A tenant deposit is owed back, so it is recorded as a liability for each unit and never as income. The total owed should match the money set aside for it.

A bank balance includes money that is not yours. Birch Way shows $112,000 in the bank, but $35,250 of it is deposits owed back and $5,750 is a reserve. Invented data.

How is the money going out of an apartment building recorded?

Record each bill to the building it belongs to and to a cost group: payroll, repairs and unit turns, utilities, property tax, insurance, management fee, office costs.

Big improvements, such as a new roof, are not running costs. They go on the building's record. What belongs in each group, and what does not, is in apartment building operating expenses.

How is an apartment building's loan payment recorded?

Split each loan payment into its parts. Interest is a cost. Principal lowers the loan balance. Escrow and reserve deposits are money the lender holds for the building.

The lender takes one draft a month. At Birch Way it has 4 parts, and the first 2 are the loan payment.

Recorded as one lump cost, the building looks $16,750 worse than it is every month. The entries for each part are in recording a multifamily loan payment.

Which reports should an apartment owner get each month?

6: a P&L for each building, a balance sheet, a cash view, the rent roll, a list of unpaid rent, and budget against actual.

• Cash view: how much cash can I really use?
• Rent roll: what did every unit owe this month?
• Unpaid rent: who still owes, how much, and for how long?
• Profit and loss: did the building make money this month?
• Budget against actual: which lines are off plan?
• Balance sheet: what does the building own and owe on the last day of the month?

What each report shows, and the order to read them in, is in the monthly report package. The reports only line up if every dollar lands in the same account every month, which is the job of the chart of accounts for an apartment building.

What does one month of apartment building bookkeeping look like?

Rent comes in against the rent roll, bills and the loan go out, deposits and reserves are tied out, every bank account is reconciled, and the reports go out. For Birch Way that month ends with $7,650 left after the loan.

Here is one month at Birch Way, 50 units at $1,450, 47 of them rented.

1. 1The rent roll comes in. Rent if full is $72,500. 3 units are empty, so vacancy is $4,350 and rent due is $68,150.
2. 2Bank statements come in. Every deposit is matched to a unit on the rent roll.
3. 3Every bill is recorded to its cost group. Running costs come to $27,000, $540 a unit.
4. 4The lender draft of $41,050 is split: $24,300 interest, $9,200 principal, $6,500 escrow, $1,050 reserve deposit.
5. 5Deposits are tied out: 47 units at $750 is $35,250, and the deposit account holds $35,250.
6. 6The operating, deposit and reserve accounts are each reconciled to their bank statements.
7. 7The 6 reports go out.

Birch Way, one month, invented data

Net operating income is the rent left after running costs, before the loan. Loan coverage is net operating income divided by the loan payment: 1.23. The building breaks even at 84% rented.

What changes with several apartment buildings, or when a building is bought or sold?

Each building keeps its own books and its own bank account, and the owner gets one view across all of them. A purchase starts the books from the closing statement. A sale closes them and hands the deposits on.

With several buildings, each one gets its own set of books and its own bank account, often its own LLC. The 5 buildings on our home page board, Oak St, Elm Ave, Pine Ct, Maple Dr and Cedar Ln, are 90 units in 5 sets of books. One view sits above them. How that is set up is in separate books for several buildings.

When you buy a building, the books start from the closing statement: the price, the loan, the prorations and the deposits the seller hands over. That is setting up the books when you buy an apartment building. When you sell, the books close the same way in reverse, in closing the books when you sell.

At year end we hand your CPA a clean file, and the CPA does the return. What goes in that file is in the year-end handoff to your CPA.

Who should keep an apartment building's books?

The owner, the property manager, or a bookkeeper. Whoever keeps them, someone should match the rent roll to the bank every month.

• You keep them yourself, usually in software. Which program fits a building is in accounting software for apartment buildings.
• Your property manager keeps them and sends you a statement. Then your job is to check it, which is how to check your property manager's owner statement.
• A bookkeeper keeps them and sends you the reports. What that costs per door is in what apartment bookkeeping costs.