Getting a great return on your rental property investment will require lots of hard work. As you start to generate revenue with your rental properties, error-free accounting will become more important. Making mistakes with your rental property accounting can have a long-term negative impact on your finances.
Over 72 percent of the rental properties in the United States are owned by individuals. Unlike large corporations that run real estate investment trusts, individuals don’t have access to a team of accountants.
Are you trying to avoid rental property accounting problems and errors? If so, here are some things you need to do.
Figure Out What Expenses to Track
There is no denying just how difficult real estate accounting can be. One of the main things you need to focus on when trying to establish sound accounting practices is tracking all of your expenses. Things like the mileage from your home to your rental properties should be documented.
You also need to keep records of expenses related to:
- Rental property Repair/maintenance
- Marketing and advertising costs
- Payable tenant expenses
If you are taking deductions for these expenses from the IRS, you need documentation. The last thing you want is to be audited and not have proof of the deductions you’ve used.
Using cloud-based software to keep track of your expenses is a good idea. These programs allow you to eliminate paper waste and increase the access you have to this information online.
Monitor Cash Flow By Monitoring Certain Metrics
Finding potential weaknesses in your real estate investment strategy is crucial. Analyzing various metrics allows you to get a better grasp on things like cash flow and profitability. Having metrics related to capitalization rates can help you develop formulas to predict the profitability of a potential real estate investment.
You also need to pay attention to metrics related to occupancy rates. If you discover tenant turnover rates are growing, figuring out why is imperative. In some cases, you can lower tenant turnover rates by upgrading your property or lowering rent prices.
Online Rent Collection Is Beneficial
If you want to improve rental property finances, then finding ways to make rent collection easier is crucial. Having to physically collect payments from tenants every month is both inefficient and frustrating. Making it easy for tenants to pay their rent ahead of or on schedule is something you should view as a priority.
Utilizing the power of online rent collection can help you greatly. Most online rent collection systems are both secure and easy to use. Simplifying the rent payment process can make tenants happier, which can reduce turnover rates substantially.
Don’t Put Rental Property Income in Your Personal Banking Account
One of the main mistakes new rental property owners make is ignoring the need for a business banking account. Mixing your personal and business income can get confusing. This can also raise red flags with the IRS. This is why separating these accounts is so important.
Apply These Rental Property Accounting Tips
As you can see, rental property accounting can be confusing. By implementing these tips, you can keep the financial side of your rental property investments strong.
Do you need help managing your rental properties? If so, contact HomeRiver Group.