If you're going to earn legitimate income from your rental property, then you need good rental property accounting.
Whether you have one or multiple properties being rented out, property accounting will help you analyze your investments and prepare for your taxes. Poor bookkeeping can cost landlords thousands of dollars in lost income, overpayment of taxes, and higher expenditure.
Keeping track of your rental property income doesn't have to be difficult. In this post, we'll give you a few key tips for recording rental property income and other property accounting practices. Staying on top of your finances is the key to maximizing profits, so keep reading and learn what you have to do.
Understand Your Transactions
If you're going to keep track of all of your rental property income, you need to understand the transactions related to it. All of the income and expenses need to be tracked in order to get a sense of the money you're making.
Tenant income, for instance, will include rent payments, late fees, and parking fees. Tenant expenses, on the other hand, include wear and tear in the apartment and any upgrades the tenant requires while in the unit.
You can break down your income and expenses into these different categories to make things easier:
- Tenant income/expenses
- Property income/expenses
- Business income/expenses
Keep Business and Personal Finances Separate
For tax purposes, it's important to separate your business and personal finances. This is true even for landlords that only have one investment property.
Having a business checking and savings account for your property keeps you organized and helps you stay on top of property expenses. When you're ready to start paying yourself out of your investment, you can simply transfer money into your personal account.
Document Expenses Right Away
It's also smart to document expenses as you go, so as not to confuse yourself down the road. Opting to do bookkeeping later becomes a logistical nightmare when you're trying to analyze your investments and do taxes.
You'll have to choose a bookkeeping system for documenting your income and expenses. Most property owners will either use the accrual method or the cash basis method.
Accrual is when you track income and expenses as they happen, while cash basis is when you track them as they show up in your accounts. Either is fine, just don't mix your methods, as it will lead to confusion.
Using Technology
There's a lot of amazing software out there that can help you with rental property accounting. By keeping everything digital, you minimize the potential of losing track of financial records and receipts.
If you can, digitize everything and keep all of the files in the same place. Come tax season, you'll have everything you need in one place on your computer.
Hire a Professional for Rental Property Accounting
Doing rental property accounting the right way can be stressful and time-consuming, especially if your rental property is supplementary income. If you want it done the right way, it can be helpful to hire a property manager to record rental income.
At Home River Group, we offer personalized rental management services that will help you maximize your investment in Phoenix, Arizona.
Whether you need help marketing your property, collecting rent, or keeping track of your finances, we'll make being a property investor easy. Contact us to find out more about our property management services today.
