There will never be a shortage of renters in the United States. It's even more true today as the number of renters increased compared to homeowners. Believe it or not 77% of people now prefer to rent instead of buy.
However, owning a rental isn't a guarantee of income. You need great rental property accounting if you want to maximize cash flow. Use the tips below to get started on your books.
Separate Your Accounts
One of your biggest goals with investment properties is to keep your income and expenses separate. Each transaction should be tracked on its own in a bank account or business card.
Doing this ensures you don't mix personal and business finances. Even if you consider buying properties an investment and not a business, treating it like a business will make things easier down the line.
Track Every Expense
The great thing about treating property as a business is the deductions you can take. It isn't personal property where it's expected to have expenses you can't recover. Every penny you put into your rental is a deduction.
Keep track of every expense to ensure you have documentation for tax season. Doing this will allow you to decrease your total net property profit and minimize your taxes each year.
Automate Where Possible
The last thing you want to do with accounting is to spend most of your time doing this. However, this may happen if you have more than one property and have a lot of transactions.
The good news is that many tools are available to help you manage things like rent collection and expense tracking. Look into accounting and property management software to see how software can help you automate and streamline your accounting tasks.
Create Reports
There's a lot of financial information available for rental properties. It isn't enough to just look at your base income and expenses. There are many reports available, some of which include:
- Profit and loss statement
- Balance sheet
- Cash flow statement
Learn your accounting software and create reports like this to gain deeper insights into your property finances.
Hire an Expert
Although you may be great at looking for properties, you may not have the accounting knowledge required to do property finances in the most efficient way. You don't have a deep understanding of real estate accounting methods or how to manage your reports.
A financial expert can help in this situation. Working with property accounting services will save time and give you more accurate books. You can be sure you'll have the best information to make decisions about your rental properties.
Handle Rental Property Accounting Correctly
Understanding your finances will be one of the primary keys to your investment property success. You may see income coming in, but if your expenses outpace what you make, you'll end up losing money and any potential gains. Use the rental property accounting tips above to ensure financial management success.
Of course, having an experienced accountant on your side will help you streamline and improve your accounting process. We offer accounting services at PMI First Choice to help you optimize your accounting records and cash flow. Contact us to learn how our accountants can help.
