As a landlord, you have plenty of responsibility on your plate. From screening tenants to managing maintenance requests, it’s all too easy to forget about the less exciting aspect of the job: the accounting.
But if you want your rental property business to turn a profit, both in the short and long term, nothing is more important than understanding your finances.
Set your business up for success. TurboTenant users who subscribe to our rental property accounting software get 50% off their first two months. Are you an existing TurboTenant user? Log in here to claim your discount.
To help you maximize your bottom line, we’re reviewing Home River Group’s most common rental property accounting mistakes landlords make (and explaining how to avoid them).
Let’s get started!
For the uninitiated, using your personal bank account for rental accounting may not seem like a terrible idea – but trust us, it is.
If you use one account to manage your personal and rental property finances, you are setting yourself up for a world of hurt. If something were to happen within your rental business, like an audit from the IRS, and your accounts are mixed, your personal finances could be frozen.
And when it comes to the day-to-day work of managing your business, you’re only making things harder for yourself if you don’t have separate accounts. Home River Group notes that “separating business and personal expenses from a single bank account is immensely time-consuming,” and there are better ways to spend your time (like comparing yourself to the best worst landlords in pop culture, for example).
As REI Hub points out, “separating your personal and business finances is the foundation of easier, stress-free real estate accounting and bookkeeping.”
Their article explains that separating your bank accounts:
While this task may seem daunting, particularly if you’ve been mixing your accounts for a while, we highly recommend taking the leap and splitting your accounts ASAP. It’s better to bite the bullet and fix your accounts sooner rather than later since it may take a bit of time – so don’t wait for your next payment to the IRS before getting started.
Procrastinating on accounting doesn’t make the process easier. In fact, waiting until the last minute to balance your books could cost you in the form of missing deductions or lacking adequate documentation. According to Nolo, “every $100 in unclaimed deductions costs the average midlevel landlord (in a 25% tax bracket) $25 in additional federal income taxes.”
$25 may not seem like that much, but let’s put that in perspective. According to our latest State of the Rental Industry report, 43% of our landlords have over 10 years of experience in the industry. If one of those veteran landlords missed out on $100 in unclaimed deductions every year for 10 years, they would have lost $2,500.
Additionally, if you expect to owe at least $1,000 in income tax on your rental profit, you should prepay your taxes to the IRS during the year, Nolo says. Doing so can help you avoid getting slammed with taxes unexpectedly come April. Typically, prepayments are due four times per year on April 15, June 15, September 15, and January 15. If you check your books infrequently, these quarterly dates are sure to inspire panic. Frantic accounting leads to more mistakes being made (and a less-than-fun audit from the IRS).
Keep more money in your pocket by staying up to date with your financial health, and check in often. Home River Group suggests handling your rental property accounting monthly, though we recommend you check on your accounts weekly if possible.
A 2018 study of small businesses conducted by Staples revealed that 75% of business owners who are struggling or failing said a lack of organization negatively impacted their productivity, and it’s easy to understand why. As Small Biz Trends notes in the link above, disorganization “means spending more time and money to remedy problems which start out small but soon grow out of control.”
Your challenges as a rental property manager only increase when documentation is hard to find quickly. If you have to evict a tenant, for example, the process is going to be so much more difficult if you can’t find records of their nonpayment.
Home River Group recommends keeping a minimum of three files to stay organized:
Pro Tip:
Digitizing your record-keeping with rental property accounting software will help you stay organized and makes finding specific information way easier.
Sure, you might have your own tried-and-true spreadsheet or a subscription to QuickBooks – but have you stopped to wonder if there’s something better tailored to the property management industry? Rental property accounting is nuanced, and neither your beloved spreadsheet nor QuickBooks offers all the features you need to understand your rental business’ expenses, revenue, and profits at a glance.
And if you want to pull a report for a specific property with set parameters, you’ll need to either be a tech wizard who can breeze through formulas without breaking a sweat or understand QuickBooks like the back of your hand.
Invest in your success by using accounting software designed for landlords, like REI Hub. TurboTenant is proud to announce our partnership with the best in the rental accounting business to help you stay organized, understand your business’ financial health, and scale your portfolio.
This exciting integration allows you to:
If you’d like to enjoy this comprehensive tool, sign up today!
9 min read
With such a competitive and fast-paced real estate market, especially rental markets, knowing how to get property management clients is crucial for starting and...
8 min read
Condo property management, on its face, is exactly what it sounds like — overseeing one or many units in a condominium building...
7 min read
Finding the ideal commercial or residential rental property can be challenging for renters, as it may only meet some of their specific...
