Entity Distribution vs Property Distributions
Here’s a head’s up for something to watch out for in Property Management Trust Accounting software such as AppFolio. The scenario would be if you ever run a property negative (which definitely could happen) – because this is property-based accounting, it will actually draw the entity negative which results in an illegal commingling of funds.
At the entity level, the distribution should’ve been calculated as $1.00, but if you are using a software that pays each owner by property, or a property-based software such as AppFolio as an example, the program would want to distribute $1k for 100 Smith St. and then would not distribute anything for the other two properties. To correct 300 Smith Street’s negative balance and cover your unpaid mortgage bill, you’d immediately need to turn around and ask the owner to return funds you had just paid out to cover those expenses.
Running your properties negative, and commingling funds can result in fines, non-compliance, and lawsuits.
Imagine if some of those properties that were negative had even more unpaid bills, which may have missed their due dates because there were not available funds to cover it, even though the entity HAD enough funds (just on another property). Using the Pay Owners function, you’ll now see that these properties don’t have available funds because they were distributed to the owner.
Your take-home message is to review your properties in the context of the owner entity, not just at a property level. Regularly checking for negative balances and transferring owner funds between properties accordingly will ensure that your property-based accounting software doesn’t cause you to make avoidable mistakes.
If you would like, APM Help is happy to review your property balances with you. Contact us today for a free 30-minute consultation at (281) 949-8755 or info@APMHelp.com.