In 2018, the Census Bureau counted nearly 20 million rental properties in the US, with 48.2 million individual units. The bureau also reported that individual investors owned roughly 14.3 million rentals.
These investors own these properties in the hope of making a profit for their investment portfolios. To accomplish this, they must maintain a robust system of property accounting. Otherwise, their property finances could lead their investment to ruin.
Property accounting performs several tasks, from determining your property value to calculating your property taxes. However, property accounting can cause some anxiety for those unfamiliar with it.
Fortunately, we can make this transition easier! We'll cover everything you need to know about property management and accounting.
Create a Bank Account for Each Property
The first task for landlords is creating separate bank accounts for each property they own. Landlords often mistakenly use one bank account for all their properties. However, this can lead to confusion and miscalculations in your property marketing.
Instead, create different accounts to track transactions by property. This way, you can avoid the risk of mixing your personal expenses and your property accounting.
Create an Accounting System
The next step is to create an accounting system. This system should report every expense your properties accrue, including:
- rent collection
- rental inspections
- rental repairs
It's crucial that your system does not over-report expenses, either. This issue can also cause problems with the IRS.
Fortunately, many landlord tips pieces include a way to do this easily. You can use a free online system to automate this accounting and spare yourself significant stress.
Choosing Between Cash vs. Accrual Method
The next step in real estate investing is choosing between the cash vs. accrual method of reporting. The cash method of accounting reports income when you receive it and bills when tenants pay them.
Accrual accounting reports income when the receivable invoice becomes generated. It also reports expenses once the cost incurs rather than when it processes. Choosing one of these methods is among the most crucial real estate investing tips!
Learn the Types of Rental Income
We've mentioned that landlords must report their rental income. However, we haven't yet talked about what constitutes rental income. This can come from several places, including:
- monthly rent payments from your Denver tenants
- prepaid rent
- fees like rent payments or terminating a leasing agreement before the expiration date
- incremental revenue like pet rent or appliance rentals
- security deposits
These sources of income must go on your Denver reports. Check other rental property laws to learn if additional revenue qualifies as an income source.
Find a Property Management Company to Handle Your Property Accounting
As you can see, property accounting is an essential task for landlords. This work ensures you can profit from your rental investment and continue providing homes for tenants.
However, many landlords find this task too much for one person. Fortunately, you don't have to do this alone. Instead, you can hire property management companies like us to assist you!
Our company alleviates several responsibilities from landlords, including tenant screening and property accounting. We also provide landlords with real estate investing tips and evaluate your rental value. Contact us today to access our services!