A Podcast | Mohamed Hussein

Pete Neubig: Welcome back, everybody, to the Northland Radio podcast. Uh, as promised, Mo Hussein here. Founder of Balanced Asset Solutions. Mo, thanks so much for being here, buddy.

Mohamed Hussein: Hey, Pete. Happy to be here.

Pete Neubig: All right. So, I actually asked you guys to come on. Asked Balanced Asset Solutions to come on because there's a lot of challenges when setting up your accounting systems and a lot of people don't know that. You can't mix funds and all that good stuff. So, but just kind of talk to me about how to get your accounting in order, like, from for newbies to maybe somebody who's been doing this for many years.

Mohamed Hussein: Yeah. Good question. And, are you referring to like in the context of, like, actually like implementing new software or just more generally speaking?

Pete Neubig: Yeah. Let's start generally speaking.

Mohamed Hussein: Speaking generally.

Pete Neubig: Generally speaking, what are some of the big mistakes you've seen people make? In the beginning that kind of mess things up. Like, I know, when I started, I guess my balance, what is it? Your your balance sheet. My balance sheet was messed up. And because that starts from day zero, no matter what you do, it's it never gets fixed, in my opinion at Empire anyway. So just tell me like, what are some of the most common mistakes that people make when they're just starting out, like in business, especially in a property management business.

Mohamed Hussein: Yeah. Great question. So, I think that one of the interesting things is and I'm sure, Pete, you've probably had a very similar kind of trajectory or kind of series of events is that, you know, most folks usually don't start off in property management, like starting a property management business. You know, most brokers initially start off doing sales and doing brokerage types of services, whether they're representing the buyer side or the seller's side. Right. And then over time, maybe things slow down. Or maybe they had clients that loved working with them and ask them if they would be open to potentially managing their properties from a property management capacity. And that's usually 98% of folks that start in property management. So in property management, you as a broker, you have your PMA agreement. So you do have your broker's license kind of on the line for the service that you're offering as a property manager. And so it's not as easy kind of just start up and running as it is in the brokerage side of the business because you're doing more transactional, right? During just the sales cycles. And once that work is done, it's complete, right. Versus property management. There's, you know, a Department of real estate that has a bunch of different compliance rules, a bunch of different regular things that need to be addressed and keeping, you know, your funds not mixed between your corporate and whatnot. And then you need to get your software kind of established. And so a lot of times, most property managers, when they first start off their property manager business accounting becomes kind of an afterthought. It's not something that is at the forefront or something that's even really, really considered. And a lot of times they may have a leasing agent that they will slowly push into kind of more of an accounting role, if you will, or like a regular bookkeeper that starts doing more and more accounting activity. And so I would say that, you know, starting off like your property management business, like having the right accounting system is very, very important, one that you can actually manage all your clients funds separately. And then even just getting it implemented correctly is also kind of a challenge. You know, nobody got into real estate because they love accounting and compliance. Right. And so, you focus on the things that make you or enable you to make the most amount of impact to your business, which is working with your owners, growing the portfolio, working with your tenants. And you know, it's most often a lot more cost effective. And and sometimes usually the opportunity cost of doing that admin work kind of yourself is better utilized by working with a third party firm that kind of focuses on that. And so I would say probably that's one of the biggest things.

Pete Neubig: I know today, you know, 2025, there's a bunch of property management packages which has accounting built in.

Mohamed Hussein: Right.

Pete Neubig: But I still see sometimes people using like QuickBooks.

Mohamed Hussein: Right.

Pete Neubig: Using QuickBooks for their property accounting. And they use the same QuickBooks for their company books.

Mohamed Hussein: Yeah.

Pete Neubig: A company of a friend of mine was doing just that. Even after he bought AppFolio, he was running it through QuickBooks. So, you know, for you guys out there. You know, especially very newbies, the property management software actually is the accounting software. Is that correct, Mo?

Mohamed Hussein: That is correct. There's a lot of programs out there that do kind of both all in one. Like operationally, if you think about like leasing and managing work orders, inspections, move outs, and then also the accounting side, managing tenant payments, vendor payments, uh, putting together a financial reporting bank reconciliations. Now, you know, I can go outside and throw a rock and probably hit somebody that knows how to use QuickBooks. Right. It's a very generic, broad based, very widely used across small businesses. You know, they have tens of millions of customers that are using it. It's very easy to use. But because it's very generic, it's not purpose built for property management. And in property management you have certain compliance requirements like separating out funds between your corporate entity or management company versus the properties that you're managing and even things like, you know, separating out the security deposits and things of that sort that are kind of required in these property management accounting systems have that in mind and how they were built. And so QuickBooks is a very general accounting system. It's not there's no notion of a tenant in QuickBooks. There's no notion of a building or a rent roll or anything like that. And so the advantage and value of using a property based accounting system is that, you know, you move out of tenant the rent roll updates and now shows vacant. Right. And then the accounting for that particular property is segmented and separated from the other properties that you're managing in QuickBooks. To do that, you can use classes and a bunch of different things within the program to kind of separate that out, but it's very difficult, very easy to make a mistake. And I would say most importantly is that the bank reconciliation process is much more different. You know, in QuickBooks, it's just looking at your banking activity and it doesn't know, hey, what property is what. But a program like AppFolio, for example, when you're doing a bank reconciliation, it actually it's looking at the property cash balances to ensure that that can be reconciled to the bank account balance.

Pete Neubig: What do you say to somebody that says, well, I have 40 different owners, so I'm going to create 40 different bank accounts for each one of my owners because I'm worried about the commingling and also I'm worried about FDIC, right. Insurance. Right. Like $250,000. Whatever. Right. So what do you say for those two things?

Mohamed Hussein: Great, great great question, great question. So firstly, you can certainly do that. Now the challenge with that is that now you have 40 different instances that you have to log in to.

Pete Neubig: Right. 40 different reconciliation, right?

Mohamed Hussein: Yeah. Yeah. Exactly 40 different reconciliations. So the Department of Real Estate doesn't really dictate how many bank accounts that you have. Like what they're more concerned about is, hey, do you have a good process and a process in general to ensure that you're not, you know, stealing from Bob to pay John, if you will. Right. And so, you know, there's always a trade off with, like, hey, should I have a separate bank account for every single owner? Or should I just have one bank account that all my owners share? Should I have a separate bank account for security deposits from operating, or should I have, you know, one for the entire portfolio? And the answer is like, all those options are perfectly fine and they're perfectly compliant. As long as you are keeping, you're making sure that you're monitoring the accounting and the balances on a per property basis correctly. And that's also the value with a property based accounting system versus something like QuickBooks, because QuickBooks won't prevent you from there's no controls inherently in the software that prevent you from over drafting on a particular property that's sharing a bank account with another property that has an actual positive balance. And so this is probably what some of the, like, one of the most kind of a more egregious kind of violations that the Department of Real Estate will look for is that, hey, are you stealing funds from one owner to pay the bills for another owner because they're sharing the same bank account. So the second question that you had about the FDIC insurance, that's a really good point. So, when you are establishing a bank account, there are certain banks that offer what are called trust accounts. Okay. Those banks, uh, a couple that we work with pretty closely are like Genesis Bank and enterprise Bank and those banks are specifically for property and asset and fund management. And in those particular banking structures, you can have one bank account, and each owner that is associated with that bank account will actually have and be insured up to $250,000. And so, my answer to kind of that challenge of like, hey, I, you know, I want to make sure that I'm properly insured by the FDIC is get with or work with a bank that actually has trust accounts, and they'll ask you for the list of the owners that will be tied to that bank account. And you'll be insured up to $250,000 for every single owner.

Pete Neubig: Yeah. I think, you know, if you go to your big Chase or Bank of America, things of that nature, they don't know what that type of account is. So they just write trust on the account, but it's not really a trust account.

Mohamed Hussein: It's not really a trust account. That's correct.

Pete Neubig: So the enterprise and Genesis are the ways to go there. I want to touch back on what you said earlier because, I think I got it right. So if I have one bank account and I have 40 owners and one owner goes negative and I pull from another owner just in that bank account to pay the maintenance, you know, the maintenance request maybe goes over the reserve and it goes negative. And then the rent comes in two weeks later, is that something that an auditor would hit me for if they see that happen multiple times or because that, you know, not allowing a entity to go negative really affects the way you can run your business.

Mohamed Hussein: That is very. Yeah, that's a really good point. And that's and that's very true. So, we're humans and people can make mistakes. Okay. Auditors recognize that. Also, you know, what they're looking for is negligence more than anything else and kind of persistent kind of violations, if you will. And so, you know, if you have the right software and the right controls in place, you would not have paid that maintenance bill that would have pushed the property or that owner's funds into the negative. Programs like AppFolio, you already these programs have actual ways when you're doing a payment run.

Pete Neubig: They don't allow the portfolio to go negative. Right. You don't actually write the check. Tell that to my vendor who I've used now paying them. And then he doesn't call and then he doesn't return my calls anymore.

Mohamed Hussein: Right. No. And that's the interesting position that a lot of property managers are in, right? You have relationships with your vendors. Your vendors don't.

Pete Neubig: The vendor works for me, not for the property owner.

Mohamed Hussein: Exactly. They could care less about, you know, who's paying them. They just want to make sure that they get paid. And they could care less about your owner relationships. But it's very important. You know, one thing that you mentioned is kind of the reserve, right? Like, hey, there needs to be a certain level reserve on the property and over time, you should get a better feel of what that reserve should kind of look like. And then the other thing is one way to work kind of around that, that a lot of clients will go about this is, the property management company will front the funds and obviously it's a separate bank account. They'll front the funds and then they'll build back the owner because they don't have the transfer.

Pete Neubig: Transfer from.

Mohamed Hussein: Exactly. And they'll put a markup on it because they had to cover it. I think that's a very simple conversation to have with the owner.

Pete Neubig: And that's a great point you made, though. They put a markup on it. Right. So whether it's a percentage or it is an administration fee, something go in there. I'm going to tell you a story and don't judge me. Okay. But, I used to allow my portfolio to go negative all the time. And when I sold to Mynd, I had to do a complete audit.

Mohamed Hussein: Right.

Pete Neubig: I found I had $37,000 owed to me in owner funds. And that went negative. Like, I just it went negative. Because we had so many owners, we were able to go negative that much. But I had to write a check for that $37,000. So I ended up paying for it. So if you listen to this, if you do put that control in, that is going to make your life a little bit more difficult, because you're not going to be able to pay certain people at certain times. You know, like when a light bill comes in and the money is the money's not there. But it will prevent you from going really cash negative. Big time. Right. So.

Mohamed Hussein: Right, right.

Pete Neubig: Because now you have to do something about it, right? I either have to take that thing off, the blocker, or I have to invest money my own hard earned money and put in at the time, which hurts at the time. I do highly recommend that, don't do what I did learn from my mistake. Yeah. Don't allow portfolios to go negative and actually have a process in place.

Mohamed Hussein: Right.

Pete Neubig: We have a process for tenant collections. Have a process in place for for owner collections.

Mohamed Hussein: Yeah. So one thing I wanted to add on that also, Pete, is that, you know, you as a property manager have a pretty good understanding of when, like, you know, maybe large renovation builds or remodels or things that are happening on the owner's property. Right? And you probably have a good understanding of average cost for like unit terms and things like that. And those are usually kind of the big, big, big ticket items. Right. And so anticipating when those are going to happen and maybe one the month prior when, you know, there's a big bill coming, you can have that conversation with the owner like, hey, we know there's going to be a big bill that's coming because of whatever renovation that you've already approved. We're not going to give you a distribution this month, uh, to ensure that we can pay that bill. Secondarily, you know, as I told you, we have we have a lot of clients also that just they handle actually all the expenses and they just bill back and put a markup on everything. And this can actually be a substantial kind of revenue stream. Maybe they use the corporate credit card or whatever to pay it, but then they'll put a markup somewhere to the tune of 15 to 25%. And that can be be substantial, right? And then the other the last thing that I wanted to comment on, Pete, is, the other thing that we see and the reason why you don't want to just because, hey, you're expecting rent to come in the next month. I mean, anything can happen with the tenants or the cash flow in the property, right? You know, Covid hit people stopped paying rent or something happened, you know, with a handful of tenants that are paying the majority of the rent and they're paying late. Now, now, now the property is continuing to be a negative balance. There could be an instance where, you know, there there's a disagreement or a scuffle between you and the owner, and you are no longer managing that property. I can't tell you how many times we're auditing clients books, and we find 100 properties with negative balances tied to the trust account, and they're like, oh, well, these are past properties. We don't need to worry about them anymore. It's no those owners.

Pete Neubig: That's what happened to me.

Mohamed Hussein: No longer active. They stole from somebody else that had funds in the bank account.

Pete Neubig: And you have to make it right.

Mohamed Hussein: They have to make it right.

Pete Neubig: They stole from me. In this. In my case.

Mohamed Hussein: Yeah. That's right. And you allowed that to happen. That's why you're the broker on record, right? You allowed that to happen. You paid those bills. In order for that, for those assets to go negative.

Pete Neubig: I'll tell you. In my experience, Mo, I got the most. When I got when I got the most time, I went negative was mainly when it was an eviction, uh, and secondarily when there was a property that came that was in between a turn and didn't rent for a long time. Those are the two big ones, because those electric bills will eat up that, uh, you know, I'm down here in Houston, Texas. So those electric bills in July, August, September, they'll eat up that reserve like nothing. Right. You have one electric bill, one landscaping bill. You're gone. And then, uh, the owner, you know, he lives in China or he lives in, you know, some other place. And he's like.

Mohamed Hussein: Yeah.

Pete Neubig: Do the money. And you.

Mohamed Hussein: Yeah. Electric bills can kind of sneak up on you. Fortunately there are solutions for that too. There are companies like Liverpool and and service and stuff like that that will actually handle all the utility billing. We'll pay the utility providers, and then they'll actually even charge the tenant an admin fee. I rent from a property managed by a large, large multifamily management company, and they and I see a charge like ten bucks that shows up on my ledger each month. That's just the admin fee for utilities. And I know on the back end there is a rev share model that's happening. So the property manager is getting like a dollar, two bucks each month. And the whole deal for the most part is either being paid by the tenants, been being, you know, uh, being allocated using ratio utility billing. And so that can actually be a significant a substantial revenue stream as well.

Pete Neubig: Yeah for sure. All right I'm going to moving on here. Where do you come out on. So uh, when I ran my business I had a security deposit bank account, and then I had kind of an owner's bank account. I know legally at in Texas. Anyway, they can be. They don't have to be separate. But we decided to do that separately. Uh, where do you come out on? Should we have separate account for security deposit, for security deposits versus just owner accounts or or merging them into one account?

Mohamed Hussein: Great. Great question. So us as being like CPAs and accountants, like, you know, we have a knack and we're obsessive about numbers and balanced books. And so name Balanced Asset Solutions. But you know, you can have a separate bank account for security, you can have a separate bank account for operating funds. That just means you now you have two accounts to reconcile. You can have a separate bank account for operating a separate bank account for security deposit for every single property or for every single owner. Uh, the net of it is, is that all these options, even states like California, it's not really required for you to have separate accounts. But you need to have the right process in place. And so for organizations where you feel like you don't have the right, uh, the, the right controls in place, the right software that has been configured correctly and the right accounting leaders or the financial leaders internally that are overlooking the books to ensure that things will not go negative. It's better to just have separate bank accounts, uh, because then that way you can ensure that those things are separated and, and you don't have to worry so much about ensuring that one property is not going negative and things of that sort because you're co-mingling funds. However, if you do have the right staff software, it's kind of in place to controls and you have process. You know, I always say there's three things in every business. You know, there's people, process product. Your product is a real estate. Your process is very important. It's the process is what's either going to be either what's going to make or break you in a lot of times. And, you know, I'll tell you a story. You know, we had a we had a client that they only had two bank accounts, one for all their security deposits. And they had a pretty substantial portfolio somewhere to the tune of about 3800 units. And they're up in the Pacific Northwest. So these are units that are paying rents somewhere between 3 to 40, 45, 3000 to $4500 a month in rent, which averaged security deposits being somewhere to the tune of 4000. So they have security deposit liabilities close to, uh, you know, six, $700,000. Um, they, uh, their owner, sorry, one of their, their, their CFO who had been with them for literally 20 years, uh, you know, he had created a fake property in the system and their accounting system and tied it to the security deposit account that where all the tenants deposits are staying. And he wrote checks out to himself. And then on the bank records, creating bank adjustments to plug those holes and then avoid the checks in the accounting system, even though on the bank statement they actually cleared. And because he created those adjustments, you know, the bank reconciliation was still quote unquote showing as reconciled and balanced. And then.

Pete Neubig: Wow.

Mohamed Hussein: Then comes an auditor, then comes an auditor. And of course, you know, the CFO sees the writing on the wall, quits. Skips town. And that is it. That's the last time that owner hears from them. And the owner reaches out to us to do a forensic audit. And we found that he had been embezzling close to $1.2 million over the past 3 or 4 years. And that's  the unfortunate thing about this industry is that, you know, embezzlement is actually very rampant. And and the so.

Pete Neubig: Talk about that. Uh, go ahead, finish your thought. And then I want to find out how we prevent that.

Mohamed Hussein: Yeah. That's actually what. Yeah. Okay. So the root, the root of that is really the lack of control and oversight. You know, as an owner, most most owners of real estate companies, property management and the like are not financial gurus or accountants or like, experts. Right. Um, and so just because you've had somebody in your staff that's been with you for eons long, um, doesn't necessarily mean, you know, you want to you want to trust but validate, right? And so you need to have some control in place. And it should be a third party. It should. The person that's reconciling your bank accounts should not be the same person that's also able to cut checks and things of that sort. You need to have certain controls where nobody, honestly, nobody in the organization should have the ability to be able to create like a property record, for example, because you can do a lot of damage in linking it to trust accounts, even though it's not a real property. And you, as the broker on record, are signing the PMA agreements. So you should have some control there to ensure that there isn't fictitious properties being created that can potentially be stealing funds out of the trust account. And so um, process, process, process, when that process you want to have some type of a regular audit or control. And you know, Pete, that example that you gave is, is not is not new. We've heard we have a lot of clients that will reach out to us. Hey, I want to sell the business. Can you guys help with the forensic audit? We do a forensic audit. Hey, you owe the trust account, like $48,000. It's like. Oh, well, I don't manage those properties anymore. It's like, okay, well, this is how the conversation is going to go with the buyer. They're going to do their due diligence. They're going to look at exactly how your books look. And I can guarantee you they'll probably hire a, you know, professional accountant and CPA like our firm or some other firm that's going to ensure that the financials and the amount of funds that are in the accounts are actually correct and that they are covered. And if they find a shortfall, they will most definitely use that to negotiate against the buying the price that they're willing to pay for your, your, uh, your business. So.

Pete Neubig: So some of our clients, you know, they want to hire a remote team member to do the bookkeeping.

Mohamed Hussein: Yes.

Pete Neubig: So they ask, how do we, you know, how do we protect from that? And so let's let's talk let's dive a little bit more into what you're going with. Right. So so you don't want to have somebody who can create a property. So uh, that also will will be able to, you know, basically make, make payments something like that.

Mohamed Hussein: Right.

Pete Neubig: Is all of that ability in the AppFolios and the Rentvines of the world, can I set up certain permissions and certain things?

Mohamed Hussein: That's right. Yeah. Yeah. That's a so that's a good question. So, uh, understanding how like how to utilize staff. And I know that like, you know, the concept of using virtual assistants, especially since Covid has been becoming more and more prominent, especially in this industry. And we commend it. It's not necessarily a bad thing. Okay. However, you need to have the right controls kind of in place. And so you can have somebody like, like a VA that's inputting the initial invoice data entry, like, hey, somebody needs to input the invoice number which is on the invoice, the vendor name, the property, the due date, you know, however, other products like AppFolio and rent, buy and stuff have an approval workflow and you should have that in place. This ensures that they do, you know, you have them do kind of the initial coding work, and then you have somebody more senior that's in the organization or using an using an accounting firm like ours to actually do that final validation before the payment goes out at the end of the month, when the owner distributions are being calculated, when management fees are calculated, you want to make sure that that there is control and oversight of that process so that, you know, and Pete, I'm sure you probably noticed this also when you were selling your business is that, you know, you got property managers are moving so fast and you're working with so many different vendors, everything from renovations, new owners, investors, what have you, that it's sometimes it's very difficult for you to say, with high level of confidence that I am getting and billing all my management fees. You'd be surprised how many folks will overlook that. And it's like, hey, you know, if you're not, if you're not paying yourself, like, what are you? You know, what is the service? You know.

Pete Neubig: What are you doing this for? Yeah. It's not.

Mohamed Hussein: Altruistic. Right. And so things that have to deal with reporting, financials, bank reconciliations, um, those are things that you probably want to use a more tenured and like an accounting staff or even at a minimum have like an auditor that you on each on a monthly basis is overlooking that because it only takes one situation or one scenario where, you know, things go haywire that puts you in hot waters, right?

Pete Neubig: Yeah. It's funny you say that because we used to run a report monthly to determine did we did we charge all the management fees for the previous month?

Mohamed Hussein: I guarantee you, you'll always find things.

Pete Neubig: Yeah. Or we also look at, you know, did we, did we charge all the leasing fees? Did we charge the lease renewal fees so we would run these? Uh, but it took me a while to get there. Um, you know, and luckily, I had a pretty good accounting person at work for me at at Empire. I actually had I had three accounting people. Two were remote team members, and one was local, and you if you probably hired you if I probably you guys were around and I, and I hired you guys, I probably would have only needed one person, not three, so that you guys can. Is that something that you guys offer, like, you got to do, like a monthly review and you guys will go in and say, hey, these are the reports that we need to create for you and look at for you to make sure that there's no embezzlement, to make sure that we are charging the fees, that we want to charge, that we're supposed to be charging all that good stuff.

Mohamed Hussein: Yep yep yep yep yeah. No.

Pete Neubig: And you look at the permissions as well to make sure, hey, Lucy can create vendors and also paying. She should not be able to create a vendor if she's making the payables. She's doing the payables.

Mohamed Hussein: That's right, that's right. Or they have the ability to create bank adjustments. It's like why? Why do they have the ability to bank bank adjustments like they can literally rig and manipulate your bank reconciliation. It's not. And I'm not trying to say that most people are malicious. You know, I'm trying to give people the benefit of the doubt, but you still need those controls kind of in place because it takes one bad scenario for things to kind of dovetail in the wrong direction. And so, one thing, we have clients that have a lot of clients that use VA's and stuff, and they'll use our team for kind of like ensuring financial compliance oversight and ensuring that, you know, one, like they have the right permissions in place as well, and that they're looking at certain like the right reporting. And we help ensure that they are calculating and getting all their management fees. Yeah. And there's workflows and stuff that.

Pete Neubig: Property management is a it's an accounting intensive industry.

Mohamed Hussein: It is.

Pete Neubig: Not just for our own books but for also our clients. Right? I mean, you have all this property accounting if you have, you know, 100 properties, that's that's 100 pieces of accounting plus all the fees that you're supposed to put out there. Plus there's all these people touching the system. So, um. Yeah, I mean, it would just make sense to have an expert to just be there every monthly just to kind of do a review to make sure that everything is, is running, uh, you know, on point. So let's roll into what are some of the financial KPIs. As an owner of a property management firm, I should be looking at on a, on a monthly basis?

Mohamed Hussein: Yeah. Good question. So I'm going to separate that out into two buckets. One is the financial KPIs that are relevant to your owners that you're managing for. And then secondarily are financial KPIs for you as a business operating as well. So for the owner funds that's trust accounting right. So the things you should be the reports and KPIs you're looking at is the trust account balances, which is the property balances. Ensuring they're never negative, that your security deposits are reconciled and that the liability associated with your security deposits matches with what you have on your rent rolls, that your bank reconciliations are being done on a monthly basis and that there's no adjustments. You stay stay away from things like journal entries. Um, because a lot of these systems have what's called subledger systems. So like a tenant ledger rolls up into the property ledger. So if you're dealing with.

Pete Neubig: Quickbooks used to have a button that just said, uh, you know, make make a transaction just like click on it. Reconcile.

Mohamed Hussein: Right, right, right. QuickBooks is also dangerous because you can do one sided transactions like, hey, I just want to do a debit, not a debit and credit. That's the other control that you have with these accounting systems. So yeah, trust accounts, security deposits, bank reconciliations, ensuring that those are current, that there's no adjustments. And I would say specifically on the bank, the bank reconciliations, you want to look out for things like stale items, especially in the deposit section, okay. If you have a deposit that is outstanding. In other words, it hasn't cleared the bank yet and it's $10,000. And it's been months. Where is that cash? Right. When you enter a tenant receipt or you enter a deposit on a on a on a property, it increases the property balance. Let's say in this example by $10,000, it won't clear the bank until you put that $10,000 into the bank account. Okay. So if you have outstanding items, deposits, if you bring it to the bank, takes maybe 1 or 2 days to clear. Okay. So 1 to 2 days behind on deposits being cleared is fine. But if you have a deposit on there that's showing over 30 days old, that is a concern because you inflated your your owner's property balances, you calculated distributions based on that inflated balance, and you have the potential now of your checks bouncing when you're doing distributions. We had a client that had over $400,000 in outstanding deposits that never cleared the bank. And, uh, one month she was doing her own distributions and her owners were calling back saying, hey, my check bounced, my check bounced. She's like, oh, well, I look, I'm looking at your property balance. And it's and it's it has the balance. But you know, what happened is that you know that those funds were never put into the bank account, and that was actually a result of embezzlement from one of her staff members. Wow. And she did not know. And now. Yeah. So, the other set of KPIs for you as a as a property management company. So, I mean, you want to look at, you know, things like profitability, your revenue, so management fees, leasing fees, maintenance fees, you should be putting markups on maintenance. That's something that is that is very normal in the industry. We see on average about 15 to 20% renovations closer to 25%. And then also like the admin fees, like things like application fees, NSF fees, late fees, if you're in insurance fees as well, and all the, all these things are important to you. And then I would say also is just the, the profitability. A lot of companies will, you know, have like a unit that they're turning over, for example. And you as management company may be taking on some cost yourself. So what are those costs like. There could be soft costs like marketing related costs like, okay, how how are you funneling those costs and ensuring that you guys are making a profit off of it? If you have a leasing fee, whatever that you expended in actual marketing fees, including the time that your staff is spending on turning that unit over or filling that unit should not be more than the actual leasing fee. If it is. And that's that's something that needs to be looked into. It should be a profit center. Right. And so.

Pete Neubig: I think I'm trying to remember the financial KPIs that we reviewed. I think one was, revenue per property and expense per property and profit per property. I think we looked at that on a monthly basis. And then of course we looked at where the where the revenue was coming from in a reporting. But that wasn't a KPI but the rev per property and expense per property.

Mohamed Hussein: Yeah. That's, that's were you guys managing your own properties or it was uh properties for on behalf of owners.

Pete Neubig: No, that was probably third, third party management. Right.

Mohamed Hussein: Third party manager. Yeah. Yeah. I mean that's good. I mean, most companies honestly don't usually look at the polls for their owners. Um, it's just like, hey, this is the rent that kind of came in. These are the expenses, my management fee, and that's kind of it. And here's your report type of thing. But that's good that you guys took a look at that because.

Pete Neubig: No, no we looked at it for the management firm.

Mohamed Hussein: Oh, the management firm. Oh okay got it. One other KPI that I was going to mention that a lot of firms overlook is lease expirations and lease or rent increases. You're making a piece, you're making a percentage of of a commission on the rent income. So if you miss doing a rent increase and we have clients that approach us like, oh, we've missed, you know, eight months, we have we're doing a rent increase now. We missed it. You know, it's been eight months. And some of these are have properties in big markets where like the increase is like maybe 200 bucks, 300 bucks. They're charging a management fee of, of uh, of almost 10%.

Pete Neubig: Or they have an owner client that says don't increase my rent because he's scared that somebody's going to move out. Right. So.

Mohamed Hussein: Right.

Pete Neubig: We solves that. As we built, we saw what the market was over the last so many years, it was between 2 and 3%. So we built a 2.5% increase in all of our leases. Also, when you get busy lease renewals, one of the first things that goes away because you're working on maintenance and turns and marketing and all this other stuff, uh, and so that happened with us. We ended up hiring a virtual assistant that just did lease renewals, and we went from like 30% of, of residents on to 96% of residents on lease.

Mohamed Hussein: That's right.

Pete Neubig: Get paid for lease renewal. We got paid on both sides. We had the resident pay us and we also had the owner pay us, and we also make more money because we were percentage based.

Mohamed Hussein: That's right, that's right, that's right.

Pete Neubig: Alright. So accrual versus cash, what should a property management company be running?

Mohamed Hussein: That is a good question. So it comes down to taxes. Right. So I mean, so there's two ways you can run a business. Your tax basis can be different than your property management business. Okay. From a property management perspective, it should be done on cash basis. The reason you want to do it on cash basis is because you want to have a very strict oversight on cash flow. Okay. When I say cash flow, you know, obviously, you know, if you're if you're looking to get this much income that you're billing for, but you haven't received everything and you're making decisions on expense management, you want to make sure you're looking at the actual cash amount. So run the business on cash tax basis accrual. The benefit of accrual is that you have things like write offs. And you have different ways to be able to use things like depreciation and capitalization of expenses. So you know, if there's an owner that you've been billing they haven't paid you on a tax basis. You can write that off as bad debt, right. But on a cash basis, you wouldn't be able to write that off because it's not cash that you received. And same thing when it comes to capitalized.

Pete Neubig: Does that mean multiple P&Ls that you guys are that you are recommending?

Mohamed Hussein: Um, multiple P&Ls? Uh, no, no, no. So I mean, so there's some systems, some that a lot of these accounting systems, they do both. They do both like portfolio does both accrual and cash. But when you're looking at your business from an operational perspective and you're in your books and understanding like how profitable or how your business is performing, look at it on a cash basis. When you're preparing to do taxes and putting together and compiling your financials, look at it on an accrual basis. That's another big benefit with these software, these different software products is that they they do they do dual in tandem. And so it's just you can it's just a filter and you just click on in order to be able to toggle back and forth.

Pete Neubig: Are you familiar with like positive pay from the banks where I am.

Mohamed Hussein: I am.

Pete Neubig: Can you talk a little bit about that and tell us what the positives and negatives of it are

Mohamed Hussein: Yeah, yeah. So um, so the whole notion of positive pay basically, you know, each time you write checks and whatever, you send that report out to the bank to let them know, like, hey, I wrote check one, two, three for x dollar amount to this vendor. So don't block it. Right. It's a control mechanism. It's there to it's there for treasury management like control and services to ensure that money is not leaving out the door that you're not aware of and that, you know, potentially embezzlement or other things can be there. Now the challenge is, is, is that the control? You can, you can, you can you can have the control much earlier than that. A lot of these software products, you can have an approval workflow for during the invoice processing even before a payment is made. And you can have only certain people that can approve a payment. And so the challenge that we've seen with positive pay, and to be honest, we've come across scenarios where, you know, clients had issues with embezzlement and funds being stolen, even with positive pay, because the person that embezzled from them is the same person that is sending the positive pay report.

Pete Neubig: Oh man. Okay. Well, that goes back to the what we talked about earlier, right. Making sure...

Mohamed Hussein: Exactly. Yeah, exactly. So yeah, it's a problem.

Pete Neubig: My challenge with it, I never implemented it because look it's a risk reward thing. Right. The more controls the less risk. But you have to do a lot more work.

Mohamed Hussein: That's right. Overhead that comes with that.

Pete Neubig: Right. And if you don't do it right, then all of a sudden a check like, you know, let's say you send somebody their security deposit back and that check wasn't a positive, but you missed it. You know how many phone you're going to get.

Mohamed Hussein: Like yeah like, oh the check didn't come or it bounced.

Pete Neubig: It wasn't able to or I couldn't. Yeah I couldn't cash a check. Negative reviews maybe even like, you know.

Mohamed Hussein: Yeah. And even your vendors. Right. Even your vendors vendor comes to your office and he's like, hey, um, can you pay me right now? I was like, alright, you give him a check and it's, oh, you get held up with some other things. You forget he comes the next day and he's like, hey, the check did not work. It's like, oh crap, I forgot to send a positive pay report to the bank. And you went to the bank same day that I gave you the check for me.

Pete Neubig: It created too much work on the front end. I'd rather just write a check every once in a while if we had to. If we made a mistake. So.

Mohamed Hussein: Right, right. And have that control on the front end. Right. Like make sure that you have actual Hawkeyes on the approval process for invoices even before they go out.

Pete Neubig: All right, Mo, we're up against it. I'm going to take a quick commercial break and then we'll we'll we'll come have you come back and do the lightning round. We'll be right back, everybody.

Mohamed Hussein: Sounds good, sounds good.

Pete Neubig: Alright. Welcome back. Mo Hussein, CEO, Balanced Asset Solutions. We're going to put you on the lightning round. Are you ready?

Mohamed Hussein: Let's do it.

Pete Neubig: Alright. What is one piece of advice you'd give someone just starting out in the property management business?

Mohamed Hussein: Do not be afraid to seek help. Um, you know, uh, you're not an expert, and and don't don't assume just because you've seen other people or have worked in offices where that activity was occurring, that you know everything you need to do.

Pete Neubig: I'm going to add higher Balanced Asset Solutions day one, just to set up your accounting correctly, because it really caused me a lot of of of, of of headache when I, when I had my accounting all messed up. Okay.

Mohamed Hussein: That's right.

Pete Neubig: Does pineapple belong on pizza?

Mohamed Hussein: Oh, man. I'm pretty passionate about this. No. For me. I can't do sweet on. No, no I can't. I love pineapple separately. I love pineapple juice, but not on pizza. I'm very much more of a savory and like, love my meat and cheese. Not meddling with fruits.

Pete Neubig: You know what, man? We can go have pizza any day you want, brother. I'm with you on that. What was your first job?

Mohamed Hussein: Oh, man. You know, I immigrated here from Somalia about 23 years ago as a political refugee. My first job was actually door to door selling Kirby vacuum cleaners.

Pete Neubig: You're showing your age, man. Oh, man. That's. No, that's.

Mohamed Hussein: I learned. I learned a lot. You learn a lot.

Pete Neubig: You're the diamond in the rough. Where? Or a jewel of the Nile. Like where you have. You're an accounting person, but you also have sales experience. Like the. Usually the accounting people don't like sales, right? You're the one accounting guy can get on the podcast.

Mohamed Hussein: It's communication. That's what it comes down to is communication. Not a lot of people can communicate well.

Pete Neubig: What is your ideal vacation?

Mohamed Hussein: Uh. Not answering any phone calls, emails or text messages.

Pete Neubig: A staycation, just not answering anything, huh?

Mohamed Hussein: I can be anywhere. Yeah, I can be anywhere.

Pete Neubig: If you could have dinner with anyone alive, who would it be?

Mohamed Hussein: Ooh! Anyone alive? Anyone alive?

Pete Neubig: Yeah. This always Stumps everybody. Because if I said anyone, everybody says, oh, Jesus. Right. Like so, I have to be a little difficult here. Um. God. Oh, man.

Mohamed Hussein: Alive.

Pete Neubig: Oh, everybody, we stumped Mo. Alright.

Mohamed Hussein: Yeah.

Pete Neubig: I'll let you come back to that. Let's go.

Mohamed Hussein: Yeah. Why don't I come back to that.

Pete Neubig: I'm going to give you a real tough one now. Which Disney character do you most associate with? And yes, you can use Marvel if you like.

Mohamed Hussein: Probably a road runner.

Pete Neubig: Road runner.

Mohamed Hussein: I don't know if that's Disney, but.

Pete Neubig: No. But I'll go with it. It's a character.

Mohamed Hussein: I'm always I'm always moving, moving, moving.

Pete Neubig: Always running.

Mohamed Hussein: Yeah.

Pete Neubig: All right. What's, uh, what's one challenge you're currently facing in your business?

Mohamed Hussein: One challenge. Um, capacity and scaling. You know, it's, uh, one challenge that we don't have is actually, like, inbound business and, you know, the need for our services, but trying to scale profitably and in a manner, because we're bootstrapped, we have no debt, we have no investors. And so doing that in a services based business is very, very difficult, especially trying to scale.

Pete Neubig: All right. Somebody who's listening to this podcast, they, uh, they have a question that I did not get to ask you. What? Um, how would they how would they reach out to you? How do they get in touch with, uh, with you guys? That's it.

Mohamed Hussein: Yeah. Great question. So, you can reach me or our company at www.balancedassetsolutions.com. You can also reach out to me directly if you'd like via email, mo@balancedassetsolutions.com.

Pete Neubig: All right. And if you are listening to this and you're not a member of NARPM, feel free to join. It's it's super cheap and you get crazy, crazy benefits. You can go to NARPM or call (800) 782-3452. And if you are looking at using remote team members for your bookkeeping, give us a try at vpmsolutions.com. We have over 40,000 remote team members on the platform looking for work. Many of them have CPAs. They're just not in the US. Mo, thanks so much for being here today. See you, everybody.

Mohamed Hussein: Thank you so much, Pete.