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Keep Only the First Month's Rent for Your Management Fees
Keep Only the First Month's Rent for Your Management Fees

Some property managers keep the first month's rent. Here's how to set that up on the lease and the management fee settings.

Samuel avatar
Written by Samuel
Updated over 4 months ago

Overview

Some property managers keep all or a portion of the first month's rent as part of their management fees. In these instances, you'll need to set up the lease and the management fees account in a specific way so that when you run the management fees on the first month, it will collect the fees accordingly.

The Steps

Step 1 - Set up the new category for the first month's rent on the Chart of Accounts

You will first want to create a new chart of accounts category under revenue called "First Month's Rent" or something similar. Here's how.

  1. To create the new account category for the first month's rent, click Accounting on the main menu and then click Chart of Accounts.

  2. Click the + New Account button at the top right corner.

  3. On the New Account window under Account Info, enter the following:

    • Type: Revenue > Income

    • Account Name: First Month's Rent

  4. Next, click Lease Options on the left menu and toggle on "Use this account for Lease Charges".

  5. Click Save to finish.

You have now created a new account category that you will use when you post a charge for the first month's rent.

Step 2 - Set up your management fees to collect the first month's rent

The next step here will depend on whether you take the full amount of the first month's rent or if you take a portion of it. If you take the full amount, follow the steps to Set Up the Management Fee Payout Categories. If you take a portion of the first month's rent instead, then follow the steps to Set Up the Management Fee Percentage.

Tip: The steps here are for the Company Default settings. If you have different management fee requirements for different properties, then you'll need to set the Management Fee policies for those properties separately. You can find out how to do that here.

Method 1 - Set Up the Management Fee Payout Categories for First Month's Rent

Use this method if you are collecting the entire first month's rent as part of your management fees. (You can also use this method if you do not want this category to show up in the owners statement.)

  1. To set up your management payout categories for the first month's rent, click Settings on the main menu and then click Management Fees under the Property Settings section.

  2. On the Management Fees window, under the Set a Management Payout Category section, click + Add Fee or + Add Another Account if there was already another payout account added.

  3. Next, in the Select Income Account field, choose the First Month's Rent account category. This means that anytime you run your management fees, the First Month's Rent payments will be included in them and not distributed to your owners.

  4. Click Save to finish.

Method 2 - Set Up the Management Fee Percentage for First Month's Rent

Use this method if you are only collecting a portion of the first month's rent as part of your management fees. (You can also use this method for 100% of the first month's rent if you need it to appear on the owners statement.)

  1. To set up a percentage of the first month's rent that will be collected for your management fees, click Settings on the main menu and then click the Management Fees under the Property Settings section.

  2. On the Management Fees window, go to the Add Management Fees section. In the Set Management Fees section, click + Add Fee or + Add Another Fee if a management fee already exists.

  3. Select either Accrual Basis or Cash Basis. Then enter the Fee Percentage, set the Base Account to First Month's Rent, and enter the Expense Account as Management Fees.

  4. Click Save to finish.

Step 3 - Set Up the Lease for the First Month's Rent

  1. We are going to add a new lease as normal. The only difference here is that you'll enter the Start Date as normal, but on the First Rent Date, enter one month later. (So, for example, if the lease starts on 2/1/2024, enter the First Rent Date as 3/1/2024.)

  2. Complete the New Lease wizard and click Save.

  3. You'll now be on the lease. Click the Transactions tab and click Post Charge.

  4. On the Post Charge window, enter the following:

    • Due Date: enter the actual first rent due date

    • Category: use the First Month's Rent category

    • Amount: enter the rent amount

  5. Click Save.

The charge for First Month's Rent should now be posted to the tenant's lease. This is a one-time charge and next month, the regular Rent charge will post. When the tenant makes a payment, it'll go towards the First Month's Rent charge.

We do this as a one-time charge because you are only collecting the first month's rent as part of your management fees this way.

Step 4 - Run Your Management Fees After Receiving Payment

The last step in this process is to run your Management Fees after receiving the first month's rent. Do this by clicking on the + Create New button at the top left corner and then selecting Management Fees under Vendor Transactions. Because First Month's Rent was added to the Management Fees or the Management Payout Categories, they'll be added to your Management Fees and not be distributed to the owner. This will only be added once for each lease you add this to since this was only a one-time charge.

That's how you add the First Month's Rent to your Management Fees and receive the correct amount each time.

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