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Did you know that renters dish out around $485 billion in rent every year? Making money as a landlord is an attractive option, but accounting for those finances isn't as easy as it sounds.
If you want to stay compliant as a property manager or investor, you need to do rental property accounting the right way. During tax season and for financial reports, you'll thank yourself for reading this guide.
Continue on to learn three effective tips for rental property accounting.
1. Separate Personal and Business Accounts
Rental property accounting is much easier and less messy when you separate personal and business accounts. Separating these accounts is essential for any legal structure.
Doing this will prevent you from running into future legal or tax complications.
The property business account should be used only for property-related expenses and income. When it comes time to do your taxes, tracking expenses from your business account will make things simple.
If you have more than one rental property, it's a good idea to open a business account for each location. This way you don't get your entities confused.
2. Record All Transactions
To manage a rental property, every single transaction must be recorded. A rental property management company can help you create a consistent method for recording transactions that come in handy if you face an audit.
Schedule time each week to ensure all transactions are recorded properly. During this block of time, reconcile your accounts to note that your money is there.
Your bookkeeping ledger should always match the things happening in your bank account. Performing a reconciliation is easier with the right software tools but you can do it by hand.
Keep in mind that completing this as a manual task makes the outcome prone to human error.
If you can't find time during the week for reconciling, that's okay! Just be sure to complete this and save your data for compliance reporting at least once a month.
3. Choose the Right Software
As we said, software makes rental property accounting much easier. Property managers can achieve good accounting practices by helping with bookkeeping tasks.
Features you should look for in software for rental properties include the following:
- Online rent payments
- Tenant screening
- Online lease agreements
- Accounting and reporting functions
Because there are different software options on the market, it can be difficult to find the best one for your property rentals. You'll need to do research to find the one that comes with features to make rental management easier.
Rental Property Accounting in the California Bay Area
Although there are plenty of ways to make rental property accounting easier, these three tips are at the top of the list.
Get to work by opening separate business accounts for each property, recording all transactions, and finding the right software. If this is too much to handle on your own, Blue Line Property Management can help!
Contact us today to learn how we can fulfill your California Bay area property management needs.
