Managing Owner Disbursements: A Guide for Landlords

When you're appraising your rental property, your mind is likely focused on one thing above all else: income potential. How much rent can you charge tenants while staying competitive in a crowded housing market? How much will you need to reinvest in maintaining the property, covering expenses, and keeping tenants satisfied? These are crucial questions for every landlord, and understanding the financial mechanics of rental income and owner disbursements is key to success.

It’s important to note that as a landlord, you won't get to keep 100% of your gross profits. Costs associated with property upkeep, taxes, and various other fees can eat into your rental income. This is where owner disbursements come into play. In this guide, we’ll explore the different types of owner disbursements, how to track expenses, and the proper accounting methods to ensure that you maximize your rental earnings.

What Are Owner Disbursements?

Broadly speaking, owner disbursements refer to the distribution of rental property income to the property owner. This could include any funds transferred to the owner after all property-related expenses, fees, and deductions are accounted for. While the primary source of disbursements is typically rental income, it’s important to understand that not all payments you receive from tenants or other sources are considered profits. Some payments, like security deposits or advance rents, may not be subject to disbursement until certain conditions are met.

The main types of owner disbursements include:

1. Rental Income
   This is the most obvious and primary source of disbursements. Rental income includes the monthly rent payments tenants make, which should be collected in full and on time. Rental income may also include any additional charges, such as parking fees, laundry room fees, or storage fees that tenants are required to pay.

2. Nonrefundable Fees
   These are one-time charges or recurring fees that tenants must pay, which are not returned to them under any circumstances. Examples include late payment fees, pet fees, or administrative fees. These fees can be a lucrative source of income for landlords, though they must be clearly stated in the lease agreement to avoid potential legal complications.

3. Expense Reimbursements
   Sometimes, landlords may charge tenants for specific expenses related to the property, such as utility bills or the cost of repairs that were initially covered by the landlord. If the tenant agrees to reimburse these expenses, this money will also be part of the disbursement.

It’s worth noting that some payments landlords receive are not considered profit. For instance, in some states, security deposits must not be commingled with the landlord’s assets unless and until deductions are made to cover damages or unpaid rent. Keeping deposits separate from regular income is essential to staying compliant with local laws.

Tracking Expenses to Maximize Rental Earnings

Before you can accurately calculate your owner disbursements, you need to first understand your expenses. Rental properties come with a variety of costs that can reduce your net income, and tracking these expenses is key to managing your cash flow effectively. Common expenses for landlords include:

1. Marketing Costs
   Getting new tenants into your property is essential to generating income. Marketing costs may include advertising on listing websites, creating promotional materials, or paying for professional photography of the property. These costs can vary depending on the scope of your marketing strategy but should be factored into your overall budget.

2. Maintenance Costs
   Every rental property requires upkeep, whether it’s routine maintenance like landscaping or repairs to fix damaged appliances. In addition to these costs, you’ll also need to budget for emergency repairs or seasonal maintenance. These ongoing expenses are a reality of property management, and having a reserve fund for unexpected costs is always a wise move.

3. Utility Bills
   Depending on the lease agreement, landlords may be responsible for paying certain utilities, such as water, gas, or electricity. If you do cover any utilities, be sure to track these expenses and incorporate them into your overall budget. If tenants are responsible for these utilities, it’s important to make sure they are paying their bills on time to avoid any gaps in payment.

4. Property Taxes and Insurance
   Property taxes and insurance premiums are inevitable expenses for every landlord. In some states, property tax rates can be relatively high, depending on the area and the assessed value of your property. Additionally, landlords are required to have insurance that covers damages to the property, loss of rent, and liability claims. These costs need to be accounted for annually.

5. Property Management Fees
   If you hire a property management company to help you with tenant relations, maintenance coordination, or other tasks, be sure to include their fees in your budget. These companies typically charge a percentage of the monthly rent collected, but the convenience they provide may be worth the cost, particularly for landlords who don’t have the time or expertise to handle property management themselves.

Tracking all of these expenses is essential for maintaining healthy cash flow and ensuring that your rental business remains profitable. Failing to properly account for expenses can lead to unexpected shortfalls that could impact your ability to reinvest in the property or cover your disbursements.

Accounting and Rental Income Tips

Once you’ve gathered all your expenses and rental income information, it’s time to focus on your accounting practices. Accurate and organized accounting is crucial for effectively managing your rental property’s finances and optimizing your income. Here are some tips for managing your rental income:

1. Separate Rental Finances from Personal Finances
   One of the most important steps in managing rental income is to keep your business and personal finances separate. This means opening a dedicated bank account for rental-related income and expenses. Mixing personal and business finances can lead to confusion, especially when tax season rolls around. It’s also harder to track property-related expenses if they’re lumped in with your personal expenses.

2. Regularly Review All Financial Statements
   Take the time to regularly review your rental property’s financial statements, including income, expenses, and overall profitability. Reviewing your financials on a monthly or quarterly basis will help you identify trends, spot potential issues early, and ensure that you’re on track to meet your financial goals.

3. Use Rental Property Software for Accurate Reports
   Software solutions specifically designed for rental property owners can be a great help when it comes to organizing finances. Tools like QuickBooks, Rentec Direct, or Rentvine can help automate many aspects of accounting, from tracking rent payments to generating profit and loss reports. These platforms are particularly useful for landlords with multiple properties or complex financial structures.

4. Keep Detailed Records for Tax Season
   At tax time, you'll need to report your rental income and expenses to the IRS. In order to maximize your tax deductions and minimize your tax liability, it’s important to keep detailed records of all income and expenses related to the property. This will help ensure that you claim the right deductions, such as depreciation, maintenance costs, or property management fees.

Maximize Rental Earnings with Axela Management

You’ve done the hard work of setting up your rental property, but now it’s time to focus on maximizing your earnings. Managing owner disbursements while simultaneously reinvesting in the success of your property can be a delicate balancing act. If you're finding it difficult to stay on top of your accounting, tenant relations, or other aspects of property management, it may be time to consider outsourcing some of these responsibilities.

Axela Management is committed to helping property owners like you streamline their operations and maximize rental income. By offering comprehensive property management services, we can help you with everything from accounting and legal compliance to tenant communication and marketing. With our expertise, you can rest easy knowing that your property is in good hands.

Contact us today to learn how we can help you take your rental business to the next level.