Everything you need to know about property management accounting, and how to choose the right software to keep your books up to date.
One aspect of running a rental that often gets pushed to the side is property management accounting. Despite its importance, it’s often the last thing a landlord wants to do, yet the longer it gets left the larger the task becomes.
To run a successful business (and your rental properties are a business), landlords need to keep accurate up to date books throughout the tax year. This will enable you to claim every available deductible expense and gain a greater understanding of your portfolios financials so that you can optimize your portfolio’s performance to maximize cash flow.
In this article, we take a look at everything you need to know about property management accounting, and how to choose the right software to keep your books up to date.
Property management accounting, also known as landlord accounting, is, very simply, the process of tracking income and expenses related to your rental properties.
Generally, in this scenario income is rent received and expenses can be anything from ongoing maintenance, landscaping or gardening, advertising costs, travel expenses, and so on. At the end of the tax year. You will most likely be required to fill out a Schedule E form as part of your 1040 and declare all of the income received and all of your deductible expenses.
Keeping inaccurate books, or waiting until the end of the year to do your financials, often results in missing allowable expenses, and thus overpaying your taxes. Additionally, the IRS requires you to keep all of your receipts and related documentation as proof. If you don’t have all of your receipts and proofs of expenses the IRS may not honor your claims.
Selecting the right property accounting software for you can be a challenge. Landlords need software that suits their particular needs which is dependent on the size of your portfolio, and your future financial goals.
One software that people often use is QuickBooks for rentals, however, using QuickBooks for rentals can be a challenge to set up and use on a day to day basis (unless you are very familiar, and potentially trained with the product). Additionally, depending on the plan you need it really isn’t the most cost-efficient solution either. This is why it’s recommended to explore landlord specific property management accounting solutions, such as Landlord Studio.
Key features to look for in a property management accounting software include:
Cloud accounting allows you to manage your income and expenses on the go. This means that you can record expenses at the point of sale, as opposed to leaving them to become a large data entry job at the end of the month, quarter, or even the year. Instead, you can enter expenses as they happen in real-time.
The best cloud accounting softwares have a native app that you can use on your mobile device, making it incredibly easy to not only enter expenses and income as they happen, but also to run reports, send and receive emails, and more.
Connecting your bank accounts to your property management software will allow you to view and reconcile relevant transactions from inside the software. This means you don’t have to have multiple tabs or windows open on your device (flicking between apps can be especially challenging on mobile). On your mobile app, you will be able to view and reconcile transactions with a few quick taps. Landlord Studio allows you to do this very simply through our integration with Plaid.
Collecting rent is a major part of being a landlord, your income needs to cover all of your expenses and generate a little extra to make this a feasible business. What you don’t want to be doing is chasing your tenants every single month for that income.
The best property accounting software’s will allow tenants to transfer money directly into your account via ACH transfers. This is secure, fast, and affordable. Additionally, with software like Landlord Studio tenants can log in and set up recurring payments, so that they don’t have to remember every month to make the payment. Instead, the transaction is automatically processed. Then on the landlord side, it is automatically logged in our income tracker.
Having an online rent collection system like this in place also gives greater clarity for both parties as they can both review historical and upcoming payments.
We’ve already mentioned that storing proof of your expenses is vital if you want to be able to claim your expenses. A good property management accounting solution then will offer you the ability to digitize your paper receipts and store them securely in a cloud folder so that you can access them anytime.
With Landlord Studio you can use our smart scan feature to take a picture of the receipt at the point of sale. The software will then automatically read the details of the receipt, enter them for you and save the receipt attached to that expense in the system.
Additionally, with Landlord Studio you can store any important and relevant documents relating to your property, or that specific tenancy.
One of the key benefits of having a digital bookkeeping system is the ability to gain a nuanced and detailed oversight of your portfolios financials. With this data, you can identify points of weakness in your rental business and improve your profitability.
Landlord Studio has an easy to use dashboard which shows upcoming expenses, cash flow, collected rent vs expected rent, and your current occupancy. Additionally, we have over 16 professional accountant-approved reports which can be generated instantly from any device and shared via email or downloaded and printed.
One key report for example is our Schedule E report which mirrors the Schedule E 1040 form so that you can simply print it off and copy across the details.
Landlords need to keep up-to-date books throughout the tax year. This means tracking expenses in real-time and running through a monthly accounting cycle. What you don’t want to happen is for this task to build up until the end of the year so that you then have to collect various disparate pieces of paper and manually enter hundreds of transactions at once. Not only is this tedious and unnecessarily time-consuming but more often than not will result in inaccurate books and overpaid taxes.
Your accounting cycle should look something like this:
Good property management accounting software will allow you to integrate your bank account and collect rent via ACH payments.
If your software doesn’t do this you may be able to manually set up ACH transfers with your tenants. Once the rents are received you need to log your income into your property accounting system, deducting any fees associated with the transfer.
With Landlord Studio this is all done automatically. Tenants set up recurring ACH payments through the software, and the income is automatically tracked.
You will likely have received invoices throughout the month for everything from maintenance, landscaping, even utilities if you are responsible for them, and other expenses that you are responsible for such as HOA fees. You will want to make sure that all of these invoices have been paid. And all of these expenses are entered into the system with the relevant support documentation stored as well.
Using a system like Landlord Studio you can connect your bank account, and then view and reconcile expenses from your bank feeds. Doing this reduces the need for manual data entry and makes it faster and more accurate to track your expenses. Log into your Landlord Studio account, open up the bank feeds feature, and then you can scroll through the expenses to make sure that you have recorded all of your allowable expenses in the system.
In order to run a successful rental business, you need to know your numbers like the back of your hand. With a system like Landlord Studio, you can easily analyze your financials by printing reports and reviewing your dashboard regularly.
Doing this ensures that your properties are cash flowing positive and that you don’t have unexpected expenditures burning through your cash reserves.
By managing your property financials in this fashion, and regularly, running through this financial accounting cycle. You will be able to keep accurate, up to date books with all of the relevant documentation stored securely in a cloud server so that you can access it at any time. When the end of the tax year comes around. All you need to do is run a Schedule E report and a Profit and Loss report through Landlord Studio and you’re done.
The right property accounting software will, very simply, save you time and money. It will allow you to run your rentals like a business without forcing you to spend hours every week managing admin tasks. Choosing landlord specific property management accounting software makes keeping your accounts accurate and up-to-date easier than generic accounting software.
And with software like Landlord Studio you have all of the essential features that you need to not only manage the accounting for your properties with great detail and accuracy but also to manage other areas of your rental business. For example, with Landlord Studio, you can run tenant screening reports, automate tenant communications set important reminders for things like gas safety and electrical safety checks, and more. And all of it can be done through the app, or via our desktop portal, wherever you are.
* First 3 properties free.