Rental Property Bookkeeping & Accounting 101

If you’re a busy landlord, you may be tempted to let your accounting fall by the wayside—but did you know that 82% of businesses fail because they don’t manage their cash flow well? Although bookkeeping tends to take the back burner, it’s crucial for the success of your business. Fortunately, setting up an efficient accounting system isn’t hard. Here are some accounting basics and simple tips to help you get started. Please note that this is not intended as legal advice but for information only. Laws may vary depending on your location.

The Importance of Bookkeeping & Accounting

Bookkeeping and accounting often get conflated as the same thing, but they’re actually interrelated. Bookkeeping refers to the recording of an individual or company’s financial transactions. These records can then be used to analyze their financial performance—known as accounting. Staying on top of your bookkeeping is important because it allows you to answer questions like, which of my properties is most profitable? Or conversely, which of my properties is eating away at my profits?

Bookkeeping & Accounting Tips

Here are some basic tips to keep in mind when developing a system for your bookkeeping and accounting:

Keep personal and business accounts separate

Keeping your personal and business accounts separate is one of the first steps for a successful business. This includes checking and savings accounts, credit cards, and debit cards. By keeping everything separate, you can ensure that income and expenses for your business don’t get mixed up with your personal financial affairs. Additionally, if you only have a business checking account, consider opening a savings account, too. This can be used for future rental property expenses like vacancies, renovations or upgrades, and holding security deposits.

Open separate accounts for each property

As your business grows, consider opening a separate account for each rental you own. This will keep expenses for each property separate and allow you to better analyze the financial data for each of them. You’ll be able to see which properties are bringing in the best ROI and which are eating away at your profits. It will also make everything easier when it comes to filing taxes.

Track your expenses

Once you’ve set up individual accounts for your properties, you’ll be able to better track expenses for each of them. This can be done through expense worksheets or by using rental property accounting software. Find a reliable system that works for you and your business and make a point to track all cash inflow and outflow for each of the properties and your business as a whole.

Choose cash basis or accrual basis accounting

Another step you’ll need to take to set up your expense tracking is to decide whether to use the cash or accrual method of accounting. If you’d prefer to log income and expenses when they hit your account, you’ll want to choose cash basis. If you’d prefer to record income and expenses as they occur, you should use the accrual method. Many landlords prefer to use cash basis as it’s more straightforward, but accrual basis can provide better insights on income and expenses over time. Cash basis will allow you to see exactly how much money you have in an account at any given moment. Both methods have their pros and cons, so you’ll need to decide which one works best for you. The most important thing is to stick with one accounting method once you’ve made a decision.

Digitize your accounting

It’s strongly recommended to digitize all your accounting documents, including scanning receipts and invoices or investing in accounting software that can keep all your documentation in one place. This will help keep your office decluttered and make it easy to stay on top of everything.

Automate your accounting tasks

Finding ways to automate your accounting will make your business run more efficiently, so really, anything that can be automated should be. Consider automating things like automatic payments, withdrawals, and reminders. Not only will this save you time, but it will also help make your accounting easier and more accurate.

Be prepared for the future

An essential part of rental property accounting is using past data to create future expense forecasts. Using this data, you can set aside a percentage of your rental income savings each month so you can be prepared for unexpected expenses or fluctuations in cash flow. The longer you’re in business and tracking your financial data, the more accurate your forecasts will be.

Understand the applicable tax forms

It’s a good idea to take some time to understand applicable tax forms as soon as you start your business. This will make your bookkeeping easier and more accurate, especially if you have employees. Make sure you know which forms are needed and what they’re used for—and keep in mind that filing forms incorrectly can be an expensive mistake. You may also want to consider talking to a tax professional.

Hire a CPA

Working with a certified public accountant (CPA) is an excellent way to safeguard your business. They can advise you on how to implement effective accounting systems, educate you on best practices, help you analyze the performance of your business, and assist you with filing taxes.

Rental Property Bookkeeping & Accounting: Valuable Benefits for Any Landlord

Rental property bookkeeping and accounting can seem overwhelming at first, but when done correctly and consistently, they offer valuable benefits for any landlord. Having a good system in place can help protect you from fraud and debt, allow you to forecast future expenses and identify which properties are most profitable, and save you time and energy come tax season. Over time, you can also use bookkeeping and accounting to fine-tune your operations.

In addition to accounting, you should also make sure you have a good system in place for other processes, including tenant screening. Tenant Screening Center makes this easy, with online access to our tenant screening services available 24/7. Our reports are hassle-free, easy to use, and contain essential information for any landlord interested in finding the best tenants for their properties. Even better, the cost is deferred to the applicant, reducing your workload and expenses! Order your tenant screening reports today, or feel free to reach out to us at any time.

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