Successful landlords have one thing in common: they keep a keen eye on property finances.
You own a rental property, which makes you a landlord, but you're also a business owner. Like every business, the goal is to turn a profit. For that to happen, revenues must be higher than operating expenses.
Yet, the vast majority of small enterprises fail because they run into financial challenges. To prevent that from happening to you, it's crucial to master rental property accounting.
Let's explore a few real estate accounting basics that will boost your profits and set you up for success.
Maintain Accurate Financial Records
A handful of financial records are involved when you're running a rental property. From lease agreements and rent payment invoices to property maintenance and repair receipts, you're always dealing with one record or the other.
Do you have a proper system for organizing these records? If you don't, you're making a big rental property accounting mistake. You need these records to not only track your income and expenses but also provide proof when claiming landlord tax deductions.
Separate Personal and Investment Property Finances
One of the reasons some landlords don't bother with keeping accurate accounting records is that they rely on the digital footprint of their finances. If tenants are paying rent into a bank account and all property expenses are charged on a credit card, everything will be recorded by the banks.
While that's true, things can quickly get complicated if you're using a personal account for your business transactions. Try tracing a rent payment from six months ago and you'll find out how difficult it is.
The best landlord accounting practice is to have a separate bank account for your rental property. Ensure all rent and rental expenses are transacted on that account. With that, you'll be able to monitor the financial performance of your property even when you're not keen on efficient record-keeping.
Utilize Accounting Software
Rental property accounting is one of the many tasks you have as a landlord and, admittedly, it's not the most exciting. So you're bound to skimp on it at some point.
The good news is you don't have to labor through it. Simplify the task with the help of accounting software. Good software will offer the following key features:
- Financial tracking
- Real-time reports
- Rent collection automation
- Receipt scanning
Although accounting software will make your work easier, it can still come up short if you own several properties.
Hire a Bookkeeper
A smarter approach to accounting for rentals is to hire a bookkeeper. The professional will take over all your accounting tasks, allowing you to focus on other property management duties, such as property maintenance and leasing management.
Plus, with their professional expertise, you can rest assured that your books are managed well.
Don't Neglect Rental Property Accounting
Rental property accounting can make the difference between success and failure in your business. Keeping accurate records and separating personal and business finances is a good start, but for the best outcome, bring in a professional.
At PMI Central Iowa, you can count on our accounting team to handle your property finances. As a full-service company, we also offer other property management services, including marketing, tenant screening, and property maintenance.
Contact us and get ready to experience the PMI difference.
