When the management agreement makes the manager's owner statement the owner's record of account

Question

A clause worth reading closely turns up in management agreements for small portfolios, tucked under reporting: the monthly owner statement the manager issues shall constitute the owner's record of account for the properties managed. No mention of source documents, no mention of what happens if the owner disagrees with a line. Before signing anything like that, it is worth knowing what those statements are actually for in the owner's books. An owner statement is a one page summary the manager sends each month: rents collected, fees taken, repairs paid out of the owner's money, and the net that was wired. Some are itemized down to every work order. Some show four lines. Two ways to handle it in the books. Re-enter every line, so the ledger holds gross rent and each expense and the management fee as separate entries. Or book the wire as one net deposit and keep the statement in a folder as backup. The first is more work and gives a real income statement per property. The second is fast and matches the bank exactly, which makes reconciliation nearly automatic, and the detail is lost. What do people actually do here?

derekj19 · Answer

The clause itself is the part I'd stare at longest. If their statement is defined as your record of account, you've handed the definition of your own income to a company whose fee comes out of it. That's separate from how you enter it.

On the entry question, netting seems to lose the number you most want, which is gross rent. If you only book the wire, you can't see collections separately from what the manager spent, so a month where they billed 1,900 dollars of repairs looks the same as a soft month on rent. Both show up as a small deposit. I'd want those two things apart even at three or four properties, because they call for completely different responses from me.

The reconciliation argument still lands though. A netted entry ties to the bank with no effort, and I've watched people abandon books over exactly that friction.

tonyv88 · Answer

That clause is usually doing one specific thing, and it looks different from the manager's side of the table. It is there so an owner cannot come back in year three and demand that reporting be rebuilt from scratch into their format. Most managers will still hand over the work order detail and the invoices if you ask, and a manager who will not is telling you something. What happens in practice is that owners with one or two properties net the wire, and owners past about six enter the detail, because that is the point where they start comparing properties against each other and the net number stops answering anything. Beacon is right that gross rent matters, and there is a second reason. Your return reports rent received gross, with management fees and repairs as separate expenses. If your books only hold the net wire, someone has to unwind that at filing time, and that someone bills hourly. How that gets reported in your specific case is a question for your tax preparer, but the reconstruction work is real either way. Fathom, ask for a sample statement before you sign. The clause matters far less than whether their statement is itemized, and some of the software in this space produces something genuinely usable while others produce four lines and a total.

When the management agreement makes the manager's owner statement the owner's record of account

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