When individual landlords own 20.5 million rental units in the United States, real estate is a great option for individuals to invest their money. It's great because you get regular monthly income and can take advantage of property appreciation.
However, just buying a home and renting it doesn't guarantee you'll make money. Follow the rental property accounting tips below to ensure you track your numbers and avoid losing money.
Keep Separate Finances
Having separate finances is one of the most essential parts of accounting for landlords. The last thing you want is to mix personal and business expenses. It makes things harder to categorize during tax time and separate your expenses.
It's also a good idea to create separate accounts for each property. Partitioning accounts like this makes it easier for rental income tracking and expense tracking for each property and run financial reports for them.
Track Every Transaction
You won't be able to run accurate financial reports if you don't have accurate accounting records. This means keeping track of and categorizing every income and expense for all your properties.
Every transaction you make should be tied to your properties. Doing this means you can account for all your expenses properly, which allows you to take deductions during tax season and reduce your taxable income.
Build a Nest Egg
You can predict a lot of your monthly expenses with rental properties. You have the utilities you cover, regular maintenance, software charges, and more. However, you can't always anticipate emergency repairs.
The last thing you want is to have profit margins so low that you can't build a nest egg. If this happens, you may not be able to cover emergency repairs, which may leave your tenants stuck with issues. Make sure to build a cash reserve to cover these unexpected issues.
Digitize and Automate
Although you may be able to handle property finances with paper records, you're giving yourself more work than necessary. It takes more storage space and requires you to manually do a lot of work.
Most property managers are better off digitizing their records. Using spreadsheets and landlord accounting software will reduce your workload and allow you to automate many redundant tasks.
Get Financial Help
Even if you have a decent grasp of basic accounting, that may not be enough to get all the data you need to make smart financial decisions. There are many reports you can build that help you learn the ins and outs of your rental business.
Experienced property management companies have accounting teams that can help. Think about outsourcing your financial needs to a professional to get more insights into your rental properties.
Take Rental Property Accounting Seriously
Owning rental properties isn't a sure way to make a profit on your property investments. You have to pay your mortgage, keep the property up, and pay contractors who help you handle some of the work. Make sure you use the advice above when rental property accounting to ensure you have great accounting records and don't lose money on your investment.
Are you looking for reliable partners to help you manage your property finances? We offer reliable financial help alongside the rest of our rental property management services at PMI Great Lakes. Get in touch to learn more about how we can help.
