If you're into real estate investing, you need to manage your balance sheet properly.
It doesn't matter if you're a long-time real estate investor with several properties or a first-time landlord, you need to treat your rentals like a business. Failing to do proper accounting will harm your rental property income, but worse, it could get you into tax trouble.
In today's post, we'll discuss the importance of proper accounting and give you a few tips on how to do it. Keep reading and you'll put yourself in a position to succeed as an investor in 2024 and beyond.
What Is Rental Property Accounting
Rental property accounting involves tracking all of the income and expenses for your rental property. Expenses include things like real estate taxes, repairs and maintenance, property management fees, and landlord insurance premiums. Income includes rent from your tenants and any other money that comes in.
Keeping track of everything is important to the success of your real estate investment. It helps you budget more effectively and file your taxes as a landlord.
Rental Property Bookkeeping Tips
Rental property bookkeeping can be a lot of work no matter how large your portfolio is. Here are a few tips to consider:
Before You Invest...
Before you purchase a rental property, do a rental roll report. This will tell you how a rental has performed over time. It's an essential tool for a new landlord in being able to figure out not just whether to invest in a property, but how to turn it around.
Separate Bank Accounts
As a landlord, you shouldn't mix personal and rental property income. Open separate bank accounts for each of your properties with separate chequing and savings accounts, as well as credit cards. This separation will help you gain a clearer financial picture of each property.
How to Track Expenses
The biggest decision you'll need to make here is whether to use the accrual or cash method of bookkeeping. With the accrual method, you'll record your income/expenses as they occur, but with the cash method, you record them as they hit your bank account.
Generally speaking, the cash method is better for those with one or two properties to see how much money they have. If you get to the point where you're a full-time property investor, the accrual method makes more sense.
Reevaluate Often
If you're treating your rentals like a business, you need to periodically check in on how they're performing. Generate a profits & loss statement to summarize each property's financial numbers and a cash flow statement to see how they've performed over a given period.
Using this information, you can make crucial decisions about the future of your investments. Tinkering away can lead to greater financial gain down the road.
Overwhelmed? Get Accounting Help Today
Rental property accounting is a side of property ownership that doesn't get talked about enough. It's a lot of work and, if you're new to property investing, can be very confusing.
If you need help managing the financial, or any other aspect of your rental investments, property management can help. Flagship Realty Group is a full-service property manager helping Greenville's property investors thrive. Contact us today to learn more about our services and how we can help you manage your money.
