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Rental Accounting

Rental Property Bookkeeping Tips For DIY Landlords

Rental property bookkeeping is important and needs to be done right.

Good bookkeeping is the backbone of any business. This is the same when it comes to managing rental properties. It helps you understand your property’s performance and ROI (return on investment), calculate claimable expenses, and avoid auditing by the IRS (or other tax bodies).

Rental Property Bookkeeping Tip: Keep in mind things like mileage and depreciation which can be big savers at tax time.

Here are our top five rental property bookkeeping tips:

1. Keep Your Business and Personal Accounts Separate

Our very first tip is to create a separate bank account for your business transactions. This should come with its own debit or credit card. Any expenses relatable to your property can come out of this account, and any income you receive from your property will go into this account.

Though not technically a legal requirement, it is strongly recommended to use separate bank accounts if you are an LLC for both liability protection and tax reporting. But even if you’re not an LLC, keeping your personal expenses and your business expenses together is not a great idea.

Read: Should you form an LLC for your rentals?

The reason this is our very first suggestion is twofold. The first is to do with getting audited by the IRS. Do you really want them to go through all of your personal finances as well as your business expenses for evidence regarding your tax claims?

The second is that it will undoubtedly make your accounting life easier!

Related: Key Figures for Evaluating an Investment Property

2. Set up Your ‘Books’ with Supporting Documents

When you set up your books (you can do this in excel or with the help of software like Quickbooks) you want to do it right the first time. This can be a time-consuming task.

However, Landlord Studio does offer a solution to this. You can quickly and easily set up detailed accounts in the app to track property income, outgoing expenses, and store all your supporting documents in the same place.

How it Works:

Set-up:

  1. Add a property;
  2. Add a Lease;
  3. Add a Tenant.

Track:

  1. Log rent;
  2. Add expenses;
  3. Reconcile with your bank account;
  4. Generate professional reports.
Track your property details

Track tenancies, leases, income and expenses, and store important documentation so you can access it anywhere, anytime.

Using the Landlord Studio app allows you to update your accounts quickly whilst on the go. You can easily reconcile your bank transactions, digitize receipts at the point of sale and ultimately save time and keep better more accurate accounts.

Supporting Documents

As a landlord, you need to keep supporting documents for all of your expenses including receipts or proof of financial transaction.

This is another feature that makes the Landlord Studio excel. Using Landlord Studio you can quickly and easily digitize all your records and documents by simply taking a picture of them with your phone and then save them all in one place.

Supporting documents provide evidence in the event of a tax audit by the IRS that the expenses you claimed for your business are valid. Although there are advantages and disadvantages to hard copies, having mobile bookkeeping is convenient because you can keep your records up-to-date in real-time, and do away with boxes and boxes of receipts that get compiled over the years.

Related: The Benefits of Property Management Software for Landlords

3. Track and Itemize All Your Expenses

All your expenses should be carefully recorded in your accounts so that you can accurately calculate your profit or loss. This is vital to determine the strength of an investment as well as for tax purposes. Having detailed and accurate itemized accounts mean you will be able to claim several expenses back against your taxes which could substantially reduce your end of the year tax bill.

Should you get audited by the IRS you will need to have detailed itemized records to prove all expenses claimed were legitimate. To help reduce issues the IRS actually defines different expense categories to aid in itemization:

  • Advertising;
  • Auto and Travel Expenses;
  • Cleaning and Maintenance;
  • Commissions;
  • Insurance;
  • Legal and Other Professional Fees;
  • Management Fees;
  • Mortgage Interest Paid to Banks, etc.;
  • Other Interest;
  • Repairs;
  • Supplies;
  • Taxed;
  • Utilities;
  • Depreciation Expenses;
  • Other.

Another item to track in your rental property bookkeeping is the interest on any loans. You need to track the monthly amount that you owe, payment due dates, any changes in interest rates, and the amount of time until the loan is paid off in its entirety.

RelatedRental Property Deductions Checklist

track property expenses

Easily track and categorize expenses and upload supporting documents to Landlord Studio.

4. View and Reconcile Bank Transactions

The next tip is to carefully reconcile your bank accounts with your books. It’s perhaps not surprising that with data entry there are often mistakes.

The process of matching your books to your bank account is called bank reconciliation. Making sure your receipts match the amount debited from your account is imperative. Mistakes happen, and companies can overcharge you, or even charge you twice!

Our feature Bank Feeds allows you to connect your bank accounts to view and reconcile transactions with a tap.

By removing manual data entry needs, and adding automation to the process Landlord Studio saves real estate professionals hours every month and removes many of the common errors in bookkeeping.

5. Creating Quality Reports

Once you’ve got your rental property bookkeeping set up you need to quickly and easily be able to generate professional reports that draw out the key figures you need and give you fast access to an overview of your financials.

Reports are a quick reference point to determine how well your business is running.

Landlord Studio has a selection of accountant approved reports that you can run in the app and instantly generate. They can be generated whenever you need them and either downloaded onto your device or shared straight from the app with your accountant.

A key report to create is your P&L (profit and loss) report. Your profit and loss report should include operating earnings or the profit made before income and tax. Operating earnings are not to be confused with net income, which is the sum income after taxes and expenses.

You can also learn invaluable things, like where you are spending too much money which can help keep your properties in the green. Some profits and losses reports include sales volume as well, or the number of total units (in this case, real estate) sold during a particular time period.

Final Words: Rental Property Bookkeeping

As tedious as it may be to constantly be updating your accounting it must be done consistently. This is why we created the landlord studio software.

Our software allows you to quickly and easily stay on top of your accounts, generate professional reports instantly, reconcile with your bank, and more.

Find out how Landlord Studio can help you streamline your rental property business →

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Ben Luxon

Ben is the editor and lead writer for Landlord Studio. He has worked with real estate professionals all over the world and written educational articles on tech, real estate, and financial growth for sites such as Forbes, TechBullion, and Business Magazine.

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