Many dream of being a real estate investor, owning properties for investment and money-making opportunities. If you're hoping to buy residential properties, it's a smart move knowing that 36.6% of all US households are rentals.
The thing people don't dream of is handling all the duties of being a landlord. This includes handling rental property accounting.
But with the correct accounting for rental property, you can almost practice the passive real estate investing that many strive for.
Read on for the five accounting tips you should be using for your rental properties.
1. Track Your Property Expenses
One important aspect of rental property accounting is keeping track of all expenses related to the property. You no longer need to manage a shoebox of receipts.
Now there are many rental property accounting software programs that allow you to quickly enter expenses for a property, so you're always up to date on property costs.
Many owners get into trouble when they don't enter expenses right away. Instead, they set them aside, thinking they'll enter them later, only to find how quickly they can get behind and not have a good handle on the property balance sheet.
2. Keep Finances Separate for Properties
Another essential strategy is to separate your personal finances from your rental property finances. You should create separate accounts for the real estate from your personal accounts.
If you own multiple properties, you also want to create separate ledgers or accounts for each property. Otherwise, it's hard to see how each of your properties is doing.
3. Set Up Automatic Payments
If real estate investing is not your only job, it can quickly get overwhelming to keep up with all the payments and responsibilities.
One suggestion is to set up automatic payments that come right from that property's account for things like the mortgage and insurance payments. If you pay utilities or garbage on the property, these can be set up as automatic payments too.
This takes the burden off remembering and keeps all your bills up-to-date with little work on your behalf.
4. Be Prepared for Tax Season
You want to set up your rental property bookkeeping to make tax season easy when it rolls around.
Set up categories of revenue and expenses as it relates to your property. Some categories might include:
- Rent
- HOA costs
- Repairs
- Mortgage and mortgage interest
- Management fees
- Insurance
As a real estate investor, you hope to have rental property profits. The IRS will expect you to use the Schedule E, Form 1040 on your taxes to report these profits.
5. Audit Your Property Expenses Vs. Revenue
Another critical part of successful real estate investing is monitoring your revenue. You should audit your property balance sheet to understand if the property is making enough to cover expenses.
Are there significant upcoming expenses you want to be prepared for? How can you plan for those expenses?
Rental Property Accounting Tips You Need
One key to successful real estate investing is careful rental property accounting.
You may also decide you don't want to handle the management of these duties and want a property manager to take over for you. We can help with all of your property manager needs.
Contact us today to learn more about our real estate management services.
