We explore 7 aspects of rental property accounting that are essential for landlords to know when they are expanding their portfolios.
The more properties you have, the more complex your property accounting needs become. If you don’t want to become bogged down in endless hours of admin tasks you need to be prepared, organized, and leverage the right tools.
In this article, we explore 7 things you need to know about your rental property accounting when you have five or more units in your portfolio.
When you have one or two properties it might seem unimportant to separate your accounts, instead simply having one business account which relates to your rentals as a whole seems the easiest solution. However, because the way you need to file your taxes requires splitting expenses out by property (eg. using a schedule-e report), the more accounts you aggregate the harder the task becomes towards the end.
By avoiding commingling, your life will be much easier when it comes time to reconcile, prepare profit and loss statements, and file taxes. Also, keeping your financial data unique to each property will allow you to quickly and easily identify any particular problems or issues are that are affecting your cash flow.
Again, with only a handful of properties, the task of counting up and recording expenses is minimal. But as the number of properties grows so does the number and variety of expenses that need to be tracked and accounted for. Recording and tracking expenses becomes harder and longer the more properties you have.
You need a reliable way to record your expenses in real-time, without which you could have a vast admin task at the end of each month (or year) and may miss out on deductions.
It is strongly encouraged for landlords, especially those with more properties to embrace digital technologies for their accounting needs. Landlord Studio, for example, allows you to scan and store documents, digitize receipts, set recurring expenses, instantly generate and share professional reports, automate tenant invoicing and receipts, and more, all from your mobile.
Digitization not only makes rental property accounting easier and faster, but it will also help you declutter your office, allowing you to escape endless filing cabinets and boxes of receipts. Finally, a quality cloud-based solution means you can manage your accounts and your properties from any device at any time.
It’s a no-brainer, the more you can automate the more time you have to focus on tasks that really move the needle. And the more properties you have the more tasks there are that you can begin to automate.
Data is key if you want to forecast or predict future expenses, even if they are fluctuating or unexpected. However, if you use multiple systems or legacy systems as a complex array of excel spreadsheets you often can’t easily access and organize historical data so that it’s actually digestible.
Landlords that do use software can gain a complete financial overview of their portfolios as a whole and their individual properties. The more historical data that you have and can view, the better you can predict future expenses and plan for them.
It’s quite probable that you won’t be doing everything yourself. In fact, as you gain more properties you might employ people in-house to manage certain aspects of your business. For example, W-9 and 1099 tax forms are required from every employee as well as non-employees that do work for you. A W-9 form documents a contractor’s tax ID number and what type of business they are. A 1099 form will be additionally required for non-employees who made over $600 from your real estate business within a calendar year.
This becomes increasingly more relevant to the more properties you have. It is recommended that you get a working knowledge of all applicable tax forms as soon as you start your business to keep all your bookkeeping processes running smoothly as there are penalties for not filing them properly. For more information around taxes, it’s recommended that you consult a licensed tax professional.
Ultimately, a certified public accountant (CPA) will not only be able to help you learn the ins and outs of tax time but could also help you maximize your deductions and save you thousands of dollars each year. It is recommended that, even if you’re employing a great income and expense tracking system like Landlord Studio, that you consult a tax professional to ensure taxes are filed correctly.
When it comes to bookkeeping for your properties you need to make sure you have good processes and systems in place. Otherwise, as you scale your business and gain more rentals your admin tasks could quickly end up eating more and more of your time each week. The result of this increased load of admin tasks is increased stress, less financial oversight, and potentially several tax-deductible expenses slipping through the cracks.
Everyone has individual needs and requirements and there are no one-size-fits-all solutions. This is why we always suggest taking full advantage of our free plan to ensure Landlord Studio is the right solution for you.