When you’re renting out a property, you’re likely focused on the important details like finding a tenant, keeping the home maintained, and ensuring your lease agreement is followed.
Don’t forget the importance of accounting.
We’re sharing five of the best property management accounting tips we have come up with over the years of professionally managing Saraland rental properties. These things will make for a better, more effective investment experience.
1. Separate and Automate Your Business Accounting
Keep your rental property bank accounts separate from your personal accounts. Set up a bank account for each rental property individually. It will save you time and prevent mistakes. You don’t want to dig through statements and records wondering what was paid when, and for which property.
Owners who have more than one rental property will have to juggle multiple mortgage payments, insurance premiums, and other ongoing costs for things like landscaping, pest control, etc. To prevent confusion and late or missed payments, schedule automatic payments to be paid straight from your bank. Make sure they’re coming from the correct, property-specific account.
2. Organize Rental Property Income and Expenses
At the simplest possible level, you’ll need to track your income and expenses. When it’s time to file your taxes, you’re going to need to demonstrate how much you earned on your rental property and how much you spent maintaining it. This has to be clear, accurate, and transparent.
Even if you work with an accountant or a CPA, you’re likely the one who will be collecting the checks and paying for repairs. Make sure you can clearly see what you’re earning and what you’re spending on a monthly, quarterly, and annual basis.
3. Budgeting and Forecasting for your Saraland Rental Property
Budgeting is incredibly important, especially when it comes to maintenance, vacancy, and tenant turnover. We always recommend that owners set aside a maintenance reserve, which will help you prepare for large expenses. Save a portion of your monthly rent in case a new water heater is needed or the air conditioning goes out.
4. Invest in Property Management Accounting Technology
Modernize your accounting as much as you can. There are a lot of great software programs out there, even for individual landlords who only have one property or a handful of homes. If you keep everything digital, you can access your records and books from anywhere in the world, and that can be extremely helpful when emergencies pop up. Your statements and reports should be accessible, clear, and transparent.
If you find yourself having to go to court, for example, you’ll want to be able to share an accounting breakdown for a tenant you’re evicting for nonpayment of rent. Sharing a paper ledger with the court is not as convenient or professional as printing a spreadsheet.
5. Prepare for Tax Time Professionally
Tax time doesn’t have to be stressful if you’re prepared and you’ve followed the four steps above. Most rental property owners will report rental income on the Schedule E of IRS Form 1040. Your rental property accounting systems should be designed for easy reporting. Set up your tax accounting in categories for rental income and expenses that break out into maintenance, professional services, refunds, advertising, mortgage interest, HOA fees, etc. Your CPA or tax accountant will know exactly what you need to reflect at tax time.
Working with a professional Saraland property management company is a good way to stay organized and automated when it comes to accounting and bookkeeping. If you’d like to hear more about our process, please contact us at IRBY Property Management.