A Glossary of Property Management Financial Terms You Should Know
There are many property management financial terms that all property managers should be aware of. Throughout this glossary, we’ll highlight the key terms and phrases essential to accounting in property management.
You can use this helpful resource to refer back to, saving you time when you encounter a financial term you’re unfamiliar with.
Accounts Payable - Represents a list of bills that are due but have not yet been paid.
Accounts Receivable - Amounts due to be paid into a property but have not yet been received.
Assets - Represents what value the property has, such as monies in property accounts and the value of the building.
Amenities - Characteristics of a property which increase its value or appears beneficial to prospective tenants.
Balance Sheet - Displays the assets and liabilities of property alongside the equity, which is the difference between the two.
Break Clause - Allows either the landlord or tenant to end the tenancy earlier than the fixed term.
Budget-to-Actual - Comparison between the budgeted amount for a certain period and actual spending and costs.
Capital Needs Assessment (CNA) - Long-term projection of the physical needs of a property, usually 20 years or greater. Includes projection of the remaining life of each item in the property and the costs associated with replacing them.
Contract Rent - Rental paid to the landlord for the right to occupy a property.
Deficit - Amount of overspending at the end of the accounting year due to costs of maintaining the property exceeding the funds collected.
Delinquency Report - A list of the people who owe money to the property. Also known as accounts receivable.
Equity - The difference between the assets and liabilities of a property.
Expenses - Monies paid out to third parties for expenses, such as property maintenance.
Escrow Account - An account opened by a third party to hold money on behalf of two or more contracted parties until a transaction has been completed.
Financial Statements - The summary of financial transactions that have occurred over a specific time period and their impact on the current financial status.
Fiscal Year - A 12-month period within which a property’s financial records are kept. This isn’t the same as a calendar year.
Fixed Expense - Expenses that are independent of whether a tenant occupies the property.
Gross Potential Rental Income - The maximum amount of rental income that can be obtained within a time window, assuming all properties are occupied and rental amounts are billed in full.
Holding Deposit - The money a tenant must pay when applying for tenancy of a property. The sum is typically deducted from the first month of rent, assuming the success of the tenancy application.
Housing Assistance Payment (HAP) Contracts - These contracts allow landlords to receive rental housing assistance from low-income households. It’s a written agreement between the owner of the property and a regulatory agency that specifies the funds that will be paid to the property over a period of time.
Income - Revenue a property receives.
Income Statement - Otherwise known as a ‘profit and loss statement,’ an income statement highlights the difference between the income a property receives and the expenses of a property.
Interest - A percentage charged by the lender from a borrower for using particular assets. Shown as ‘expenses’ in the budget, this typically refers to mortgage interest rates in property management.
Interim Rent - Rent payable during a holding period within which a new lease is negotiated or completed.
Inventory - A document which specifies the contents of a property and the condition of contents. Tenants must check the inventory's accuracy before a tenancy begins. This can then be cross-referenced at the end of the tenancy to determine whether additional costs are owed (i.e. damages).
Joint and Several Liability - When more than one person is defined as the tenant, they’ll be ‘jointly and severally’ responsible for payments. Both parties are responsible for complying with the regulations outlined in the tenancy agreement.
Landlord Insurance - An insurance policy that protects the landlord from financial losses associated with a property, such as fire.
Lease - A contract outlining an agreement between the landlord and tenant. The tenant gets the right to use the property for a fixed term and the landlord receives payments for the duration of the agreed term.
Lease Extension - Agreement to extend the length of a lease by a defined period.
Liabilities - What the property owes, such as security deposits to residents or mortgage payments.
Market Rate - The price for a real estate purchase, which depends on seller's valuation and buyer’s inclination to pay.
Monthly Financial Report - Another way of describing income statements.
Mortgage - Legal agreement between a bank or building society and a debtor. The agreement between the debtor and the lender gives the lender the right to take the property if the debtor fails to repay the amount borrowed plus interest.
Negative Variance - When the difference between the budgeted amount and actual amount is worse than predicted, such as expenses being over budget.
Net Operating Income - Before-tax figure, which highlights property revenue following the subtraction of operating expenses.
NRL1 Form - This form can be submitted to HMRC to request that rental income be paid without deducting UK tax. This form can be submitted if the landlord owns a UK property but lives outside the UK.
Occupancy Rate - Percentage of occupied properties within a total group of properties.
Operating Budget - A financial plan projecting a property’s income balanced by its expenses over 12 months.
Over Budget - When the actual income is more than budgeted income (positive variance) or when actual expenses are more than budgeted expenses (negative variance).
Percentage Fee - An agreed percentage from a property’s collectable income for a property management fee.
Profit and Loss Statement - Another name for an income statement.
Proration - The process of dividing expenses proportionally depending on a party’s share of owning or renting a property.
Rent Roll - A written report that lists all tenants at a current property and the information about each tenant’s lease.
Reserve Funds - Funds stored by landlords in preparation for scheduled works or unforeseen circumstances.
Return on Investment (ROI) - This shows how much profit an investor makes on a property as a percentage of the investment cost.
Security Deposit - What the tenant pays before moving into a property. This is used to cover unpaid rent or damages.
Service Charge - Payments by the tenant to the landlord for the services the landlord provides, such as maintenance in communal areas.
Subsidy - The difference between the rent the tenant pays and the contract rent for the property.
Surplus - Any amount left over at the end of an accounting year due to lower management costs than the funds collected.
Tenant Rent Payments - The portion of the contract rent paid by the tenant.
Tripartite Lease - A lease with three parties, typically the leaseholder, the landlord and the managing agent.
Turnover Rate - The relationship between the number of properties prepared for re-occupancy and the number of properties.
Vacancy Loss - Revenue lost due to unoccupied properties.
Vacancy Rate - Relationship between the vacant properties and the number of properties in a unit.
Variance - Difference between the actual cost of something in the budget and what was initially budgeted. Variances can be either positive or negative.
Year-to-Date (YTD) - The time between the first day of the fiscal year and its ending as of any specific day.
Yield - A property's annual income as a percentage of its value.
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