There is a myriad of costs that come with managing rental properties. You have cash inflow from rental payments. Additionally, you have cash flow out from maintenance, insurance premiums, real estate taxes, and more.
These can feel overwhelming. It's a good thing you have rental property accounting to keep track of the inflow and outflow of cash. Read more to learn about the whats, whys, and hows of accounting for rental properties in our short guide!
1. Why You Need Rental Property Accounting
Owning properties is a business, and like any smart person in the industry, you want to analyze your moves.
Do you know if your property is financially healthy? Where are you spending the most? Are your books clean for taxes?
Recording your activity keeps you safe from legal trouble and helps you plan your next moves. You can advance your business through renovation, expansion, or maintaining a good cash flow.
2. What Do You Need to Do?
You accomplish rental property accounting by keeping an organized portfolio for auditing. However, what goes into these books?
Balance sheet
The balance sheet records the property's assets, liabilities, and equity. It is a barometer of your rental property's financial health over time.
Tenant Reconciliation
What is a landlord without their tenants? Tenant reconciliation lists the tenants and the costs tied to them renting out your property. These may include each tenant's lease agreements, payment history, and expected payments.
Income Statement
Running a business involves give and take. The income statement is a profits and losses report. It showcases your real estate net profit, loss, revenue, and expenses.
When you know where you spend the most, you know what to adjust. Income statements encompass all the behind-the-scenes charges of rental property management.
This includes facility use, property taxes, maintenance, and insurance. This is also where you keep track of expenditures on maintenance to ensure your property is in tip-top shape.
CapEx Schedule
CapEx encompasses a period where you monitor the property's actual and planned expenses. These expenses are often long-term investments, such as improving or acquiring properties.
Schedule E
Schedule E is a tax form. It contains the income and expenses for filing federal income tax returns.
3. How You Should Do It
Keeping track of costs and collectibles has to stay organized in rental portfolio books. The general ledger contains all the financial transactions and tracks your property's economic performance.
Journal entries elaborate on the attributes of a transaction from the general ledger. This includes the date, nature of the transaction, the amount incurred, and category.
Keeping things in an electronic or online record keeps your data secure and updated. Accounting for rental properties isn't easy. If you think you have too much on your plate, consider hiring a property management company.
Do You Need Help With Rental Property Accounting?
Owning and maintaining a rental property has considerable costs behind the scenes that keep things running smoothly. Stay on track so you can bolster your business. Rental property accounting is a challenging feat.
Keep yourself legally protected and advance your career as a landlord with Verandah Properties. Contact us today or peruse the tools and tips from our site to help you!