Very few people want to spend their time calculating capital depreciation. Or make an effort to maintain detailed records of expenses.
If you're a landlord though, rental property accounting isn't just a nicety, but a must. This is crucial to ensure your ongoing success.
Otherwise, you might lose too much money towards taxes or other expenses. And not make enough profits to make your rental property business profitable.
Keep reading to find out the basics of rental property accounting so that you can stay on top of this crucial aspect of your real estate business.
Maintain Detailed Records
If you aren't the most meticulous record keeper, then you will need to start changing that persona or hire someone better at this than you, a bookkeeper perhaps. Detailed records of everything related to your rental property will ensure nothing slips through the cracks.
It will also help you identify potential tax deductions, handle tenant disputes, and provide evidence for any legal or financial matters.
Consult With a Professional
If you can't do it on your own, then consider hiring a rental property management service that can take care of it all for you. Some of us are great at purchasing profitable properties, but not good at maintaining them. Work with your strengths and hire folks to complement your weaknesses.
Separate Business and Personal Finances
This should be a given, but too many real estate property owners don't make this delineation between business and personal finances, resulting in confused financial statements.
Open a separate business bank account dedicated solely to rental income and expenses. This separation simplifies bookkeeping, makes tax filing easier, and provides a clear overview of your rental property's financial health.
Reconcile Bank Statements
Regularly reconcile your business bank account statements with your accounting records. This practice ensures that all transactions are accurately recorded. It also helps identify any discrepancies or errors.
It might be a tedious task to perform, but once you get into the swing of it, you will realize how useful this accounting practice truly is.
Use Some Kind of Rental Management Software
Do you know how many of your properties are behind on rent? How many paid on time?
Instead of going after each of your tenants one by one, it's a better idea to set up the software to chase after rental payments. This will make it easier for you to track rental income without missing even a single month.
Implement Rental Property Accounting Principles Slowly
Don't start panicking if you feel overwhelmed by the steps presented above. If you don't wish to put any time or effort into rental property accounting management, then contact us. We are a property management service that will manage your rental properties from top to bottom.
We market the property for rent, find a tenant, screen the tenant, and handle property maintenance and rent collection. This way you can focus your time and energy on the stuff that matters to you.