Quick answer: In short, keep client money in labeled escrow accounts, keep a ledger for every owner and tenant, and make sure those ledgers always add up to the escrow bank balance each month.
Property managers handle other people’s money every day: rent, security deposits and payments to vendors on behalf of owners. Clean accounting protects your license, your owners and your reputation.
Escrow accounts in Virginia
Virginia real estate rules require firms that manage property to hold rent and security deposits in escrow accounts at a federally insured institution, clearly labeled as escrow. Key points:
- The principal broker is responsible for the escrow accounts
- The balance for each owner must be sufficient at all times
- Client money cannot be mixed with the firm’s own money
- Security deposits must follow the Virginia Residential Landlord and Tenant Act
Track every owner and tenant
Each property and owner needs its own ledger showing rent collected, expenses paid, management fees and distributions. The total of all owner and tenant ledgers should always match the escrow bank balance.
Tip: Reconcile escrow accounts every month and compare them to your owner and tenant ledgers. It is the single best protection against shortages.
Owner statements
- Rent collected and any late fees
- Repairs and other expenses paid
- Management fees
- Net amount distributed to the owner
- Security deposits held
Owners also need a year end summary for their tax return. Our Schedule E guide explains how they report it.
Your own firm’s books
Separate from escrow, your company has its own income from management fees and leasing fees, plus payroll and overhead. Keep these books completely separate from client funds, and track profitability by property or portfolio.
Taxes and 1099s
- Send 1099s to vendors you pay on behalf of owners when required
- Report rent paid to owners as required for your setup
- Plan your own firm’s estimated taxes and owner pay
Property Management Accounting FAQs
Do property managers need a license in Virginia?
In most cases, yes. Managing rental property for others for a fee generally requires a Virginia real estate license under a principal broker, though some exceptions apply.
How much security deposit can a Virginia landlord collect?
Under the Virginia Residential Landlord and Tenant Act, a security deposit cannot exceed two months’ rent. It generally must be returned, with an itemized list of any deductions, within 45 days after the tenant moves out.
Can management fees be paid straight from the escrow account?
Yes, once they are earned under the management agreement. Transfer them to your operating account promptly and record them on each owner’s ledger.
Do property managers send owners a 1099?
Often, yes. A manager who collects rent and pays it to owners generally reports those payments on Form 1099-MISC when they reach the reporting threshold. Our 1099 guide has the current amount.
How often should escrow accounts be reconciled?
At least monthly. Comparing the bank balance with your escrow register and every owner and tenant ledger catches shortages before they become a licensing problem.
Property management accounting support
Our real estate and property management accounting service reconciles escrow, keeps owner ledgers accurate and handles your firm’s books and taxes.
This article is general information and not tax advice for your situation. Tax rules change, so talk with a qualified professional before making decisions.
