Property Management - The Basics

There is a minimum level of administration required for the owner of a buy to let property. Generally, letting agents are used mainly to find tenants for the buy to let property, manage tenant requirements, collect rent from tenants and provide assistance with legal requirements (including lease contracts).

These agents generally withhold a fixed % of the rent collected in return for these services. The owner, however, generally still assumes the risk of payment defaults and there is always therefore a minimum administrative burden on the buy to let property owner.

When a buy to let property owner decides not to use a letting agent, the administrative burden is increased substantially. The owner is now responsible for collecting his own rent and monitoring payment trends to identify a problem before potentially suffering a loss as a result of default and having to go through the process of eviction.

A property software solution could be a very helpful tool in this process. Various property management tools are available from a wide range of sources, but the difference in functionality between these tools could be vast. The property owner therefore needs to weigh up the different options against each other in order to decide on the correct tool for their own individual circumstances.

Type of Entity

The level of administration required could differ materially between different legal entities used to acquire buy to let properties. The decision whether to buy a property in one's own name or through the use of a legal entity like a company, close corporation or trust is definitely not a simple one.

Professional advice should be sought when deciding on the best course of action. Factors which would influence this decision include estate planning, income tax planning (including the effects of capital gains tax), available cash flow, etc.

When a buy to let property is bought in a legal entity, there will also be the additional administrative burden of compiling regular accounts and annual financial statements. In most instances, a professional accountant will be used to take care of the accounting and tax requirements.

Accounting vs Investment

All transactions relating to a buy to let property investment need to be recorded for accounting (legal entities) and taxation purposes (individuals and legal entities). This requirement does not exist for primary residences as these assets are deemed of a personal nature and therefore do not have income tax implications.

The level of accounting and complexity of the solution which needs to be used would therefore largely depend on the ownership structure of the property in question. Accounting solutions like Pastel, Quickbooks, etc. are most commonly used for recording entries.

These applications are however not suited to measure the investment return associated with a property investment. This is largely due to the fact that the increase in value of the property will not be recorded until it is sold and selling costs would also only be taken into account at this point. The investor is generally therefore in no position to measure the actual investment return associated with an investment on an ongoing basis.

A solution to this problem is to invest in a property software solution which allows the investor to measure actual investment return and to provide the reports generated by the software to the accountant in an electronic format for converting and uploading in an accounting application when required.

The investor is therefore still in a position to make the correct investment decision and will also be able to comply with the regulatory requirements. The accounting fees could potentially also be reduced if the owner captures his own income and expenses and provides the accountant with the data in electronic format.

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