The ABCs of Property Management by Ken McElroy

Author:Ken McElroy [McElroy, Ken]
Language: eng
Format: epub, pdf
ISBN: 9781937832544
Publisher: RDA Press, LLC

OTHER LOSS

There are a number of things that would go into the other loss category. These generally include money that was supposed to be paid to you, but that the resident has held out on. For instance, if a resident moves and owes you rent or has damaged an apartment to the extent that the damage deposit won’t cover the costs, you would contact the resident and charge them for the work. Unfortunately, many times residents are either hard to track down, or unwilling to pay these amounts. This might be a good time to point out that you should always get a resident’s new contact information when they move.

Any amount that is owed to you but not paid is considered bad debt. Oftentimes you will send these debts to a collection agency and they will try to recover the bad debt for you. Sometimes they will succeed, other times they won’t. Money that is collected is referred to as bad debt recovery, and money that is not collected is considered bad debt write-off (since you will be able to write this off as a business loss).

Bad debt will vary from property to property depending on management, location, market, and demographics. The best way to budget for bad debt is to look at your property’s history and budget based on the average trend. In our example you can see that bad debt was decreased significantly from the previous year to the current year. There are a couple of reasons why this might happen. Maybe it was simply a good year for the property. Another reason might be that the management tightened its screening and attracted higher quality renters and there will be significant documentation on all of this. In this category, it is always better to have more than just two years comparison, but for our sake we will assume that the rental profile is getting better and budget for $47,000 in other loss.

If you are purchasing a property with a rough management history then you can be sure that there will be a “hangover” period or higher loss while you adjust your residents’ behaviors.

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