Multifamily Accounting to Manage Projected Growth
A fundamental of economics is that when supply and demand meet in that coveted sweet spot, the piece of the pie usually gets larger. Never more true, is in the current multifamily housing cycle.
The last five years haven’t disappointed, as transaction volume has reached record proportions, exceeding $100 billion annually.
According to the National Multifamily Housing Council, 33 of the Top 50 owners in 2017 boosted the size of their portfolios. And while transaction volume has dipped slightly since a record run in 2016, future investment in multifamily housing is poised for gusto. NMHC maintains that more than 325,000 apartments will need to be added each year up to 2030 just to meet a new generation of residential customers.
Current growth of portfolios are already impacting corporate accounting in multifamily, and the future will certainly have an even greater effect.
As portfolios expand, managing intercompany accounting for the corporate and operations sides of multifamily will require more firepower. Without a robust accounting platform, routine functions like billing and invoicing for a stable of properties will necessitate more manpower and adversely affect general and administrative operating expenses under old-school bookkeeping practices.
Some are fighting through such scenarios just keeping up the current pace.
“We’ve heard from our key customers about the inefficiencies of intercompany cost charges and allocations,” says RealPage Vice President Dan Newbern. “They spend significant time paying bills back to themselves.”
Eliminating the headache of intercompany charges and allocations
Property management companies have the arduous task of generating bills and invoices for each apartment community in the portfolio day in and day out.
A PMC may choose to pay an invoice from a vendor, like the overnight delivery service, in full and then charge back each property appropriately. As each property pays, a journal entry is manually made.
But manual invoicing and posting can take hours and is prone to mistakes.
Automating those functions through a property management accounting platform offers relief, Newbern says. Invoices can be generated for each property and automatically posted when transactions are complete.
Lowering the total cost of ownership
The efficiencies gained in back-end process and cost allocation saves time and money. Reducing the amount of time it takes for accounting staff to oversee transaction detail lowers costs.
It’s money in the bank, especially when more properties come on board and are integrated into the accounting process.
“The amount of overhead for a property that is reduced through these efficiencies, in a sense, is revenue gained per unit,” Newbern says. “It’s going to reduce the cost of property operations.”
Transparency and visibility available at every level
Because reporting related to corporate accounting is an animal unto itself, whether it’s a management company reporting versus a property type, RealPage Accounting, which is part of the company’s Financial Suite of property management software, has the versatility for portfolios regardless of size.
Reporting of key performance indicators from compilations of performance metrics provides greater transparency and visibility by various property types and asset classes. Similarly, the system provides reporting functionality from the overall portfolio management perspective.
“If I am a PMC that’s managing a group of assets, how those are reported on as a group is going to be different than if it is an individual property,” Newbern said. “We provide the ability to look at profitability by their lines of business.”
Managing intercompany accounting for both corporate and operations side of the business within one platform drives workforce efficiencies and decrease general and administrative expenses. The process becomes more fluid and is highly adaptable as the portfolio grows.
Positioning portfolios to manage future growth
The future appears to hold more opportunity for portfolio growth. The right accounting solution needs to be able to scale with the business, and be able to adapt to changes in a portfolio whether it’s acquiring new properties or adding investments, Newbern says.
Just meeting current needs is a quick fix that will cost a lot in the future.
And nobody wants to pass up on a new business because the system can’t handle one more opportunity.