It's estimated that landlords receive approximately $353.7 billion in rental income each year. While this form of passive income is great, there's no denying that it can come with some annoyances.
One of them is keeping track of all your rental property accounting. Often there are so many financial records to keep track of that it can lead many landlords to cut corners.
Sadly, it only takes a small mistake to deal with some serious tax repercussions. That's why we made this guide for you. In it, we'll walk you through some tips for staying on top of your accounting records.
Keep Accounts Separate
One common mistake that new landlords make is mixing their bank accounts with their business accounts and investment portfolios. In the event of an IRS audit, this will cause a lot of irregularities that can get you in trouble.
Instead, create at least one separate business account for your rental properties. If you want to stay organized, you should create a separate account for each property you own. Keep in mind that you don't need to separate accounts if you're a sole proprietorship.
Track All Transactions
As a real estate investor, you're dealing with many different forms of income. On top of rent, you also need to manage security deposits, late fees, parking fees, application fees, and reserve funds.
In addition to income, you should also track all expenses, like maintenance, repairs, utilities, legal fees, advertising, and property management services. To stay organized, we recommend grouping all transactions into categories.
Three good ones include tenant transactions, property transactions, and business transactions. However, you can subdivide these in any way that works for you.
Consider Dedicated Accounting Software
Professional accounting software can automate a lot of tedious aspects that come with keeping accurate accounting records when renting to tenants. Many types can even integrate with other types of software to simplify the process even further.
Consider reaching out to an accountant to learn more about the types of accounting software that can help you with your rental properties. Or use a property management service that provides this type of accounting service for you.
Hire a Property Management Company
Many people think that commercial property management companies can only help manage your tenants. However, in addition to helping you learn how to manage your properties, they can also assist with a variety of accounting and reporting tasks.
In addition to helping you maintain accurate financial records, they can also assist in budgeting, financial reporting, handling taxes, and providing you with any financial information you might need.
These types of services are a great way of relieving some of the financial stress that comes with rent.
Contact PMI Properties for Rental Property Accounting
We hope this guide helped you learn more about rental property accounting. Here at PMI Properties, we don't think owning rental properties should have to be a hassle.
That's why we offer full-service property management services to landlords. In addition to accounting, we can also help with things like marketing and tenant placement. So if you're ready to make property management easy, contact us today for help.