Guide to Rental Property Bookkeeping

Rental Bookkeeping

While real estate and rental property bookkeeping may not be the most fun aspect of real estate investing, it is an essential component of the real estate machine. Understanding these data is crucial for successfully running a business. Because of that, some real estate investors may hire an accountant or professional bookkeeper to keep track of their property expenses. Rental property owners and real estate investors can cut their expenses and maximize their rental income potential by using suitable bookkeeping practices.

Let’s look at what bookkeeping for real estate or rental property entails. We will also see how real estate bookkeeping works. More importantly, we can some ideas and tactics for people looking to bookkeep their real estate investments successfully.

Rental Bookkeeping
Rental Bookkeeping

What is Bookkeeping for Real Estate or Rental Property?

Investors and owners can discover the true value of their property by using real estate bookkeeping. Whether it be for a rental property or another real estate investment. A real estate bookkeeper is responsible for maintaining correct records of rental income, business expenses, asset values, obligations, and potential depreciation considerations. These professionals keep track of this data in order to maintain accurate records. They also use it to find potential areas for additional investments or cost savings.

Real estate bookkeeping sometimes needs monthly reconciliation of financial payments and transitions, accurate classification of expenses as deductible or capitalized, and the responsibility of reporting equity to rental property or real estate owners. Many financial reports that represent property values, such as rental income statements, cash flow reports, capital expense statements, rent rolls, bank reconciliations, and profit & loss accounts, require a professional in real estate bookkeeping.

What Does Rental Property Bookkeeping Track?

Numerous transactions take place within the real estate and rental property industry that bookkeepers will record to simplify future tax seasons and help owners understand the functions of their business. Some bookkeepers will keep track of the surplus of information manually. It can also be automated using a rental property accounting system that automatically tracks and updates expenses and income. Some common transactions and expenses real estate bookkeeping accounts for include, but are not limited to: 

  • Monthly rent payments
  • Rental invoices
  • Monthly mortgage payments
  • Vendor invoices
  • Late fees
  • Security deposits 
  • Property tax payments
  • HOA dues
  • Condo fees

Tips for Successful Real Estate Bookkeeping

Accurate bookkeeping can transform any business’ operations, thus developing proper financial literacy and real estate bookkeeping should not be overlooked. The advantages of keeping precise financial records are numerous, including prospective tax preparation, business metric/cash flow awareness, understanding job performance, and credit score and asset management.

Keep All Personal Expenses Separate from Property Expenses

This may seem obvious to seasoned real estate investors, but it’s critical for rental property and real estate investors to keep their personal and business spending separate. To minimize any confusion, separate bank accounts and lines of credit should be established. Commingling cash occurs when personal and property expenses are combined, and it is a big no-no in the tax world. When the line between personal and corporate expenses blurs, the IRS might readily identify the property for fraud. If you maintain your personal assets separate, whether directly or through an LLC, if the property struggles financially, it won’t have as much of an impact on your personal capital.

Keep Copies of All Receipts

At the core of all successful bookkeeping for real estate and rental properties is keeping track of receipts. This entails not only keeping an accurate record of receipts and invoices but having numerous copies of this information for referrals and comparisons down the line. Many experienced bookkeepers will keep an electronic version of receipts, whether manually or through accounting software that’s able to scan receipts for ease of searching through receipts later on. As for filing taxes, the IRS requires businesses to keep track of any receipts over $75 for expenses. 

Properly Categorize Expenses

Keeping track of receipts is important for successful real estate bookkeeping. Still, the main goal of recording that information is to properly categorize all transactions that go into and out of the property. Without categorizing expenses, bookkeeping can become a mess impressively quickly. All expenses ultimately calculate taxable income, so bookkeepers should categorize expenses based on the IRS’s required fields to accurately file their taxes each year. When sorting and organizing expenses, we suggest using these categories from the IRS’ Schedule E file for properties. 

  • Advertising
  • Auto and travel
  • Cleaning and maintenance
  • Commissions
  • Insurance
  • Legal and other professional fees
  • Management fees
  • Mortgage interest paid to banks, etc.
  • Other interest
  • Repairs
  • Supplies
  • Taxes
  • Utilities
  • Depreciation expense or depletion (capital improvements)

Keep Records Updated and Modernized

Updating information is considerably easier with technology, many accountants and bookkeepers rely on it to keep accurate records of spending. Many accounting software alternatives not only give automated updates and useful tools for recording and tracking spending, but the act of using these systems is also considerably faster than digging through a wall of file cabinets. Using technology to keep accounting in order is never a bad idea, especially for those who manage many rental properties.

Selling a Rental Property? Sell it with us!

Real estate bookkeeping may appear to be a time-consuming chore. However, by knowing the advantages of proper bookkeeping, real estate investors may optimize their prospective profits and gain a better understanding of their entire organization. Rental property and real estate investors can approach their properties’ financial well-being with greater openness and awareness using these helpful recommendations, saving money in the long term. We specialize in CASH AS-IS offers at A Team Marketing to assist speed up the real estate experience.

If you’re rushing to sell, we most definitely can help you out. Simply give us a ring at 855-66A-TEAM (855-662-8326) or fill out our contact form here!

Published by Jeff Anderson

We are your premier real estate solutions team. We solve complex real estate issues.