In the United States, individual investors own around 70% of rental properties.
Don't let the idea of property accounting deter you from becoming an investor. Even though it may seem overwhelming, thousands of people do it every year and you can, too. Keeping track of your financials is a crucial part of owning and renting property. In order to make the most profit, you'll need to follow the tips below.
This property accounting guide will give you five ways to keep track of your income, expenses, and everything in between. Continue reading for more!
1. Keep Business and Personal Separate
You must keep your business and personal account separate. Not only will help you keep your finances organized, but it will also keep you protected if something goes wrong with your business.
There's always a possibility that you will be audited by the IRS. If your accounts are together, the IRS will go looking through all your personal accounting information. It's best if that can be avoided at all costs.
You'll be avoiding personal liability by having them separate.
2. Open a Business Account
Part of keeping your business and personal banking separate is opening a business account. Having multiple properties can become unmanageable. While it's not necessary to set up a bank account for every property you own, it's something you should consider.
It can help to see every property's finances laid out neatly. Having one business account may work for you, but if it comes too hard to keep track, separating them is a great option.
3. Track All Expenses and Income
Another one of our best accounting tips is to keep track of all your spending and your cash flow. Keep all your receipts and documents relating to your investment properties.
This includes how much money you charge for rent, and how much you spend on advertising, insurance, maintenance, and other fees. Keeping an itemized list will make it easier to show the IRS come tax time.
Every month, you should take the time to organize all the income and expenses into a file. If you get behind on this task, it will take a long time to get reorganized.
4. Check Your Books and Accounts
Every month when you're itemizing your expenses, compare your receipts and files to your bank account. You'd be surprised how often there is a discrepancy in property accounting.
Make sure the amounts in your books and receipts are the same as what the account shows. If something is off, you may need to contact the company to see if they overcharged you.
One of the best and easiest ways to keep track of your property accounting is to work with a professional. Bookkeeping and accounting can be tedious and take up a lot of time that you can spend expanding your real estate portfolio. Working with a property management company will make investing in property much more manageable.
Don't get behind on your property accounting and become overwhelmed. Give us a call and our team of professionals will get you set up.