If your client sells a property to another client, you need to follow specific steps to ensure that the financials for each owner are kept separate, as the new owner of the property should not have access to the financial transactions that belonged to the old owner once the property is sold.
Properly changing ownership of a property will also ensure that you will have accurate numbers when it comes to filing 1099s for the tax year.
To ensure a proper change of ownership, you’ll want to use the following steps:
1. Create a new property
The first step to show a change in ownership on a property in Buildium is to create a new property to represent the purchase by the new owner.
Buildium will not allow you to have two properties with the same name, but you can add a unique identifier to indicate that this is the second version of this property. For example, 123 Main street and 123 Main Street (new).
When creating the new property, select the new owner from the rental owner drop-down menu, or use the Add new rental owner option to enter their information if the owner does not exist in the system yet.
2. Create new leases
Once you’ve created the new version of the property, create new leases on that property for the existing tenants.
Fill out the add lease form with the original lease start end dates, and select the existing tenant(s) from the drop-down menu in the Tenants section.
Under Recurring charges, select the next due date as the first date the tenant will owe rent to the new owner rather than the old owner.
Under Deposits and initial charges, enter the amount currently being held as security deposit for the tenant and the date of the change of ownership on the property.
3. Transfer resident financials
If there is a security deposit being held for the tenant on the old version of the lease, you need to represent a transfer of that deposit to the new lease. If your company is currently holding the security deposits on this property, this does not require taking any steps in the real world, but instead involves initiating “dummy” transactions to represent the transfer from the old lease to the new lease.
To transfer a tenant’s security deposit:
- Navigate to Rentals > Rent roll.
- Click on the original lease, on the old version of the property.
- From the lease summary page, click Financials > Issue refund.
- Issue a refund out of the bank account where the funds are currently located, in the total amount of the deposits being transferred. Add a memo that shows this is an adjusting transaction and that there is no real world equivalent. For example, Internal transfer: Change of property ownership.
- Once the refund transaction is completed, navigate to Rentals > Rent Roll.
- Then, click on the new lease. Receive a payment for the security deposits on the new lease, with the same date, same amount, and same memo as the refund you issued.
- Once the payment has been saved on the new lease ledger, deposit the payment in the same bank account you issued the refund from.
- If tenant has an outstanding balance as of the change of ownership date, you can enter an opening balance on the new lease ledger.
4. Close out the old property
Provide whatever reports you normally give to your former client on a monthly and annual basis, then inactivate the old version of the property.
If you still need to provide a 1099 at the end of the tax year to the old rental owner, Buildium will pull 1099 information from inactive properties.