Are you struggling to stay on top of your rental property finances?
You’re certainly not alone. There are over 20 million rental properties in the United States. About 15 percent of these are owned by individual investors.
Like every landlord, your primary goal is to maximize the return on your investment. There are measures you have to put in place for this to happen. Practicing proper rental property accounting is one of them.
In this guide, we’re fleshing out a couple of tips for managing property finances. Whether you’re a landlord or a professional property manager, there’s something to learn.
Read on.
1. Create Separate Bank Accounts for Each Property
Do you use your personal bank account to receive rent payments? That’s a big mistake. Mixing up personal and business finances makes it more difficult to account for your investments.
If you’ve opened a separate bank account for your rental income, that’s a good move, but you can do better. The best rental property accounting practice is to open a separate account for each property in your portfolio. If you have five properties, that means opening five bank accounts.
With income from each property going into a separate account, you’ll be in a great position to monitor the financial performance of each property. Also, ensure all expenses related to a certain property are paid from its account.
When tax season rolls around, computing your rental income and associated expenses will be a breeze. You’ll file accurate rental income returns while making the most of the deductions.
2. Keep Financial Documentation
Rental property owners know that they need to keep accurate records of records of transactions involving the property, such as receipts and rent deposit slips, but slack on it. Some assume that since every transaction is going through a bank account, they can count on the bank to keep a trail.
Sure, the bank will keep a record of your transactions, but having physical documents can come in handy in certain situations. For instance, to claim a deduction on your rental income, the IRS will need documentary evidence to support your claim.
In some cases, there are transactions that might not go through the bank. For example, if you received a good or service from a tenant in exchange for rent, there won’t be proof of payment unless there’s relevant documentation.
3. Make the Most of Technology
Technology has no doubt made managing rental property easier. From tenant screening software to automated accounting applications, there isn’t a shortage of options.
Speaking of accounting software, this is a must-have. Keeping track of financial transactions, even for just one property, is difficult. Having an application that tracks everything and breaks down the data for you saves you time and reduces the risk of clerical errors.
If you’re a property management firm, there are more powerful accounting solutions you can use, such as AppFolio. You can also hire an experienced consultant to help ensure you’re making the most of the software. Check out BAS AppFolio Consulting, for example.
Practice Effective Rental Property Accounting
You’ve made a big investment in your rental property. You deserve big returns.
Staying on top of rental property accounting is one of the keys to maximizing your ROI. Observe these accounting best practices and you’ll move closer to your goal.
Keep reading our blog for more helpful articles.
