If you’re not an accountant or a top financial expert, handling accounting as a rental property owner or body corporate manager is typically herculean.
Just like any business, one wrong step with accounting can lead to the downfall or total crash of that business entity.
Installing a financial tool that works is crucial to make a real estate enterprise successful and gives room for an exponential increase in your investment profits.
Below, we’ll be giving answers to the question, “How To Do Rental Property Accounting?”
Please read on to get an insight of the basic principles that you’ll need to engage when setting up an accounting system and automate it for seamless operations.
Setting Up Accounting: Steps to Take
As an investor in charge of several properties, you’ll like to know when you’re making gains or losses. How do you achieve this? You do so by setting up an effective accounting system.
Follow these accounting rules for a rental property to effectively set things up:
Create Different Bank Accounts
Choosing the best bank account is a crucial aspect when creating new bank accounts as an investor. It’s essential to ensure that these accounts are separate and independent from other rental property accounts.
By carefully selecting the right bank account, you can optimize your financial transactions, manage funds more efficiently, and take advantage of beneficial features that suit your investment needs.
Here, we recommend having a checking account to collect rent from tenants. Also, create a savings account to help you save for upcoming bills.
Most times, these bills include; land taxes, insurance, and miscellaneous expenses.
Creating different accounts prevents you from mixing things up while helping you keep everything in perspective.
Track Your Expenses
Most landlords face one major issue— forgetting some expenses or calculating everything at the end of the month.
As a result, landlords face an increased admin task, and most times, they forget to record their expenses. Also, this singular act results in the loss of thousands of dollars every year.
Instead of allowing paperwork build-up, landlords are to record their expenses in real-time.
With specific software like Landlord Studio, creating expense related spreadsheets that once took hours reduces to just mere minutes.
Make sure your tenets added you as an interested party to their renters’ insurance agreement. According to RentSwift, landlords benefit from this by clarifying who pays for what in the case of a disaster.
With technology advancing every day, offering paperless options is the right path to tow.
Going paperless isn’t just a great move for your business, but it makes everything organized and seamless.
While documents like tenant-landlord agreement and payments might still come in hard copy, find methods to digitize them.
You can do this effectively by scanning those files on your computer or saving them on the cloud.
Even if you scan all the documents, always back up and have some essential documents and files on paper. Why? Because digital programs can crash at any time, leaving you scurrying to recover lost data.
Are you a newbie who’s testing the waters of real estate investment? It’s crucial to get a proper understanding of taxation and how the tax system works.
Having background knowledge on this concept helps make the process seamless and avoid hiccups set to rear its “ugly head” later on.
Top Accounting Software Options For Landlords
For some landlords, keeping tabs on the finances a rental property holds is usually time-consuming. Typically, landlords are only interested in leasing and collecting rental income.
The following are the best property management software effective in keeping landlords up-to-date with their current rental situations by generating useful reports:
FreshBooks features an ever-changing structure that’s instrumental in automating bookkeeping while saving time.
It also has on show cloud-based software crucial for landlords to track their real-time expenses, create invoices, receive payments, and offer well-organized management for their rental properties.
At FreshBooks, the customer care service offers excellent support for users looking for answers to technical questions.
According to reviews, this software saves an average of 16 hours monthly. It also comes with a 30-day free trial period.
Do you own a small or mid-sized property? Well, iRent might be the right fit for you. iRent is a cloud-based software that features a range of tools for; billing and processing rent, paying bills and effectively keeping tabs on rent slips.
The software also showcases an outline of properties and different tenant notification features. On iRent, you can easily set reminders on upcoming maintenance and repairs.
Buildium is yet another cloud-based software, meaning you can handle accounting on the go.
It features comprehensive property management for residential homes, an association for homeowners and condo complexes.
To use this app, you don’t have to be a chartered account. With different help pages to guide you when faced with problems, this software is arguably one of the easiest to use in its class.
Unlike the other software listed above, Yardi Breeze doesn’t offer an in-app experience. It’s helpful to landlords that are either beginners or professionals in accounting.
Yardi Breeze features accounting management, online rent collection, integration options with other accounting software, billing and invoicing, and owner reports.
Here, pricing starts at $1. Depending on the property type, landlords can spend up to $100 for residential properties and $200 for mixed or commercial properties.
If you’ve already hit the ground running with experience in accounting, consider Appfolio.
Appfolio is best suited for landlords who are in charge of high scale buildings.
Appfolio offers various features, including; smart bill entry, utility management, automated late fees, and relaxed time reporting. It also has a fantastic customer support service.
With an onboarding fee of $400, Appfolio has a monthly fee charge dependent on the property type. Even though it’s expensive, Appfolio is one of the best platforms for landlords with large investment portfolios.
How to Account for Rental Income
Accounting for rental income plays a significant role in running your enterprise. Doing this is vital to understand how much profit you’re required to state on your tax forms and the total tax amount you’re to pay.
The rental income you’re to declare on your tax form depends on the type of accounting you use.
Here, the well-known way is called the “Cash basis method.” The Cash basis method requires you to report income as you receive them and accrued expenses as soon as you pay for them.
The other method is known as the “accrual method.” Here, you declare income once you earn.
As an investor in the real estate market, it’s pertinent to note that accounting plays a vital role in any rental property’s success.
These days, it’s effortless with the introduction of various software. As a landlord, you can now evaluate all the metrics involved in rental property management without much difficulty to yield more rental income.