Advance Rent in Buildium: Prepayments Setup and Pitfalls

Hold advance rent as a liability, not as rent income, until the month it pays for. In Buildium the clean way is the Prepayments setting: an early payment with no open charge goes to the Prepayments liability account and is applied on its own the day the rent charge posts. The older manual method (prepaid rent liability, offsetting charge, withheld deposit on the 1st) still works and is still the right tool for last month's rent. Either way, check monthly that the prepayment applied, that the owner draw did not pay it out early, and that no late fee posted on rent it covered.

What advance rent does to your books if you do nothing

If a tenant pays January rent on December 20 and it lands in Rent income:

• December rent income is overstated and the owner statement shows two rents.
• The December management fee run picks up both payments.
• The owner draw pays it out, because it is income with no liability offsetting it.
• It lands on the owner's 1099 for this year. Box 1 is every rent payment dated inside the tax year, on a cash basis.

The oldest forum answer, just send it to the owner, is wrong: the money is not earned, you may owe it back, and in a trust account it stays a liability until then.

Two ways to hold it

Method 1: the Prepayments setting

1. Go to Settings, then Application settings, then Residents. Scroll to Prepayments and click Edit.
2. Choose an option. "Automatically apply prepayments to the next outstanding balance" applies the money to whatever posts next; "Automatically apply prepayments to balances on specific accounts" limits it to accounts you list, such as Rent income.
3. Save. You can override per property (Financials tab, Lease payment settings) and per lease (Financials tab, Payment settings).
4. Move money you already hold; the setting is not retroactive. Under Accounting, Chart of accounts, open the quick menu next to the old prepaid rent account and choose Move transactions into the Prepayments liability account.
5. Do not move last month's rent. Buildium has a separate Last month's rent liability account that is never auto-applied.

From then on, a payment with no open balance goes to Prepayments, Buildium adds a prepayment charge so the ledger reads zero, and when the rent charge posts an applied prepayment turns the liability into income dated that day. The rent roll gets a prepayments held column and each ledger a blue banner with an Apply to balance link.

Method 2: the manual prepaid rent liability

Buildium's pre-2018 process, still the method for last month's rent.

1. Receive the payment and allocate the early portion to the prepaid rent liability account.
2. Add a charge, same date and amount, allocated to the same liability. The ledger now reads zero by date and by account.
3. On the 1st, Buildium posts the rent charge as usual.
4. On the lease Financials tab, use Withhold deposit to move the liability to Rent income, dated the 1st.

Step 4 is the weak point: skip it and the tenant is charged a late fee on rent already paid. Set a recurring task in Buildium as the reminder.

The pitfalls and the fix for each

The prepayment never applied

The most common complaint: the owner was paid short and the tenant was charged a late fee even though the prepayment covered the rent. The usual causes are a "specific accounts" setting that leaves out the account charged, a property or lease override that switched the feature off, or money still in the old prepaid rent account. Open the ledger, click Apply to balance, then fix the setting. Before every owner draw, read the rent roll's prepayments held column.

A reversed EFT

A tenant pays on the 31st, the money applies to rent on the 1st, and the bank returns the payment on the 6th. Before December 2018 the reversal left a balance owed on the Prepayments account and a balance due in the tenant portal, and the prepayment charge had to be deleted by hand. Buildium now deletes that charge itself and flags an over-applied prepayment. You still need to review the applied prepayment and allocate the replacement payment to rent, not to prepayments.

A late fee on a ledger with a zero balance

Buildium charges late fees per income account, not on the overall balance. If a payment sits in a prepaid rent liability with no matching charge while a Rent income charge is open, the ledger reads zero by date but rent is unpaid, and the fee posts. Fix it from the ledger By account by editing the payment or the charge; to find every affected lease, run the Lease Ledger By Account report filtered to leases with an account balance that nets to zero.

Custom payment allocations cause the same thing: a payment with nothing owed goes entirely to the first account in your custom order, so with Late fee income first, early rent posts there and late fees fire on the 1st. Put Rent income first, or leave Prepayments on.

The owner draw pays out the advance rent

Available for payment is ending cash less the property reserve and tenant liabilities held, so money in a liability account is not offered on the draw. The leak is a payment posted to Rent income by mistake: the draw includes it and the management fee is charged on it. Reallocate before you pay owners, or edit the Amount to pay on the draw page; Adjust cash balance can also subtract pending incoming ePayments and unpaid bills. Turn on Tenant liabilities in the Rental owner statement settings so held prepayments show on the statement. See the guides on owner draw processing in Buildium and generating owner statements in Buildium.

December payments and the 1099

With the Prepayments setting, a January rent received December 20 sits in the liability and becomes income on January 1, so it lands on next year's 1099. Posted straight to Rent income, it is on this year's form whether or not the owner has been paid. Property managers are split on which is right; Buildium says to check with your accountant. Pick one policy, write it into the owner FAQ, and stop reclassifying after the fact: Buildium warns that editing a payment's allocation changes available cash and the 1099 calculation. A statement period ending on the 25th changes the owner statement, not the 1099. See the Buildium 1099 guide for the filing itself.

Section 8 lump sums and claw-backs

A housing authority sometimes pays an extra month in a combined deposit and deducts it the next month. Hold the extra as prepaid rent so it does not reach the owner. When it is taken back, Buildium's guidance is a refund on that lease ledger with a memo saying no check was written, treated as part of the larger deposit when you reconcile. Apply the prepaid amount to a balance first; Buildium blocks refunds posted directly against a prepayments account.

How to prove it is right each month

1. The rent roll prepayments held column equals the Prepayments liability on the balance sheet.
2. The Lease Ledger By Account report with the net-zero filter returns no rows.
3. Your three-way reconciliation covers it: the trust bank must hold prepayments as well as deposits and owner balances.

FAQ

Why does the tenant portal show a balance due when they prepaid? Since 2022 the prepayment charge and applied prepayment are hidden from the tenant statement and payment reminder. If a balance still shows, a reversal or manual edit has unbalanced the Prepayments account; check the ledger By account.

Do I still need a prepaid rent liability account? Yes, for last month's rent and anything that must not apply to the next charge. Use the Last month's rent liability account.

Key takeaways

• Advance rent is a liability until the month it pays for.
• The Prepayments setting handles early rent and overpayments; the withheld deposit handles last month's rent.
• Late fees are charged per income account; a zero ledger balance is not proof.
• Check the prepayments column and the net-zero report before every owner draw, and pick one December 1099 policy.

APM Help cleans up prepayment balances and misallocated ledgers and runs monthly three-way reconciliations for property management companies. For a second set of eyes on your Buildium books, contact us.