More than 35% of US households are rental homes.
A lot of people strive to get into the real estate market. You can generate continuous income from a rental property, but it's not always easy. There are various challenges, and one of those is proper accounting.
In this guide, we'll go over three tips for keeping your rental property accounting records. Keep reading for more.
1. Keep Your Business and Personal Accounts Separate
Before owning a rental property, you might use just a single account for all of your finance. Once you own an investment property, you should change this. It's best to open a new bank account specifically for business transactions.
This account should come with a credit or debit card, and any expenses related to your property should go through it. All income from the property should also go directly into this account.
It's highly recommended that you use a separate bank account if you're operating as an LLC for both tax reporting and liability protection. Even if you're not operating as an LLC, having all finances go through a single bank account will make things far more complicated than they need to be.
This is even more important when it comes to tax time. If you get audited by the IRS, it will make things much easier to deal with if your business and personal finances are separate.
2. Track and Categorize Expenses Regularly
Any experienced real estate investor will tell you that there are a lot of expenses when you own a rental property. A mistake that many beginners make is not tracking these expenses properly.
You should always track all the money coming in and going out. You can do this weekly, monthly, or quarterly depending on the number of expenses you have. Bear in mind that updating your accounts more frequently will ensure it's always a smaller job.
When tax time comes around, having everything in order will save you a lot of time and effort. You can also generate monthly reports to get a better insight into your finances. You can then make adjustments to help improve your profitability and cash flow.
3. Stay On Top of Your Finances
One of the tasks that people often neglect in real estate investing is generating reports. You can use these to pinpoint important figures and get a clear overview of your finances.
Using suitable software to update your accounts will make this a lot easier. A report is one of the quickest and easiest ways to check how well your business is running. It can be difficult to use such software, however, so working with a property manager is often the best solution.
Proper Rental Property Accounting
When you buy your first property, you'll quickly realize that rental property accounting can be very difficult. The best way to make sure you get things right is to work with experienced professionals.
PMI KC Metro is a full-service real estate asset management company based in Blue Springs, Missouri. We offer a range of property management services that can help you be successful in the world of real estate investing. Take a look at our Accounting and Reporting page to see more about how we can help you with your accounts.