According to BankRate's latest Money and Mental Health survey, at least 47% of Americans say money negatively impacts their mental health. It sits above all other suggested factors, including:
- Health
- Relationships
- Current events
Managing money can be even more stressful for landlords. Keeping up with the accounts of their rental properties can be a heavy weight on top of all their other financial concerns.
There are ways landlords can feel less like they're buried under a pile of papers. The right strategies will help them categorize and manage property accounts until they go from stressful to manageable.
Read on to learn the best tips for rental property accounting.
Separate Your Finances
Open an account for your real estate finances to separate them from your personal finances. This will prevent them from becoming intermingled.
Having separate accounts reduces errors. It's all too easy to put a number into your personal account that relates to your property and vice versa.
It also makes it easier to track rental income and expenses, which is especially important during tax season.
Do you have multiple properties? Consider opening separate accounts for each one. It will also help with organization and cash flow management.
Organize Your Accounting Records and Review Them Regularly
Develop an organized system for storing and accessing your physical and digital accounting records. Splitting them into categories makes it easier to access what you need when you need it. Back them up to an external source, such as a hard drive, in case anything happens to the original copies.
Review your financial reports periodically. It will help you determine whether your property remains a profitable investment over the years.
Reconcile your monthly bank statements with your accounting records. It helps you catch any discrepancies before they become a major issue.
Track Income and Expenses
Record detailed information about all sources of income you have from your properties, including:
- Rent
- Late fees
- Pet fees
- Appraisal fees
Don't leave anything out. Remember to take note of who you received the income from, the time, and the amount.
Record all property costs as well, including:
- Maintenance
- Repairs
- Insurance
- Taxes
- Utilities
Categorize those expenses into operating or capital to make life easier at tax time. Operating expenses are deductible in the current year. Capital expenses depreciate over time.
Create a Financial Forecast
The profitability of a property is about as easy to predict as the weather, but the predictions are equally important. Organized records are essential to creating an accurate financial forecast.
Any trends or patterns in your records are worth noting. They can provide valuable information to help you be more profitable. One of the most important things to keep an eye on is your cash flow.
Look at every instance of money coming in and out of your property. If it's consistently positive, it may be time to invest in new properties or upgrades or even raise the rent. If it's consistently negative, reconsider your budget to see where you can cut expenses. You may even have to consider lowering the rent.
Screen and Communicate with Tenants
You may wonder what tenants have to do with rental property accounting when they don't manage any reports themselves. The truth is, how you manage them has a great deal to do with how profitable you are.
According to the CDC, approximately 14% of renters have received rental late fees in the last year. The amount of tenants with an outstanding balance is 3%. These can be a major hit to your rental income.
Comprehensive tenant screening prevents late payments. It helps you weed out anyone who may fail to pay rent or damage the property.
Make sure every tenant knows their financial obligations, such as when rent is due. Include this information in the lease so they know it from day one. Back up the leases and make them easy for tenants to access.
Communicate clearly with them about any changes,, such as rent increases. Let them know how much it's going up and why. Give them advance notice of when maintenance professionals will come to their unit.
Clear communication keeps tenants happy and encourages them to remain in the building. Back it up with careful record keeping of who needs to pay you and when.
Prepare for Taxes
Taxes are one of the most stressful parts of real estate finances, but enough preparation can make them feel second nature.
Learn which tax forms you'll need to submit annually and how to fill them out. Most rental income and losses are placed on a Schedule E Form 1040.
Look into all the landlord tax deductions you may or may not be eligible for, such as:
- Mortgage interest
- Depreciation
- Travel
Do a thorough search into the eligibility requirements for all of them. You'll avoid applying for the wrong deductions and leaving money on the table.
Are all these steps still leaving you anxious? Quarterly estimated tax payments can help if you expect significant tax liabilities.
Hire Professional Help
Hiring professional property management takes the entire process of handling real estate finances off your hands.
A full-service property management company can do even more. They'll provide assistance with all your daily tasks, including but not limited to:
- Lease management
- Property maintenance
- Legal compliance
You won't have to worry about anything on your property anymore. They'll take care of everything, freeing you up to invest in it further on your own or spend time on other passions.
Get More than Account Management Today
The best tips for successful rental property accounting include separating your accounts, monitoring your expenses and income, forecasting your finances, being careful with tax preparation, and hiring professional help.
Provest Realty & Property Management has been serving the High Desert community since 2012. We tailor our services to our client's needs.
Our team of fully licensed specialists are experts in the local community. We're ready to help with filling vacancies, rent collection, property maintenance, and anything else you need. Contact us to see how we can improve the profitability of your investment today.
