The number of renters has been increasing for a while now, and with the economy in worse shape for normal people and prices increasing, that number may continue increasing. Believe it or not, the number of renting households is now approaching 60 million.
If you want to take advantage of this trend, buying investment property to rent is a great choice. However, you'll need to make smart financial decisions to succeed. Use the five rental property accounting practices below to do things right.
1. Keep Your Finances Separate
The first thing you should do with property management is learn how to keep your finances separate. You may not consider this if you're buying property as an investment. However, that doesn't mean you shouldn't treat it like a business.
Set up a business checking account to use for all your property-related activities. Doing this will help you separate your personal and property finances and ensure you have proper documentation during tax time to prove your expenses.
2. Track Every Transaction
It's important to track every transaction to ensure you have a complete picture of your rental's current position. This means setting up income tracking for rent collection, deposits, and other fees. It also includes expenses like property maintenance, software subscriptions, and other items.
This will give a more accurate view of your overall finances. It will also help you track deductions to ensure you don't pay more than necessary in taxes.
3. Automate Where Possible
You want to do as little manual work as possible when doing real estate accounting. It leads to a lot of wasted time that's better spent on other tasks and leads to potential mistakes.
One of the best bookkeeping tips to follow is to automate everything you can. There are many accounting and property management programs that allow you to streamline and automate accounting tasks. These tasks include everything from account reconciliation to rent collection.
4. Create Reports
You shouldn't just look at basic income and expense statements when examining your property finances. That does help you determine overall profitability, but it won't always tell you the whole picture.
You need reports detailing your overall financial health, current assets, cash flow projections, and other reports. This information will help you make more informed decisions about your real estate business.
5. Work With Experts
You may not know all there is to know about property finances. You can understand the basics, but when it comes to the little details like deductions, tax law, and other issues, some information may be lacking.
If you want to avoid missing something important, working with an expert property accounting company is a great choice. They will ensure your finances are done correctly and you have the best information possible to make decisions from.
Do Rental Property Accounting Well
One of the keys to successful property management is accurate landlord finances. You can't afford to have wrong numbers, no reports, or unknown variables when determining if your properties are profitable. Use the rental property accounting practices above to do things right and manage your finances well.
And if you're looking for help to ensure your finances are being done correctly, PMI Davis Reality can help. Our property management services can help you with all your accounting needs, as well as help with any other aspect of property management. Contact us to learn more.
