Many investment advisors say investing in real estate rentals is a great way to grow your net worth. While this is true, it isn't a sure thing. When reports show that 35.8% of rental businesses fail in the first five years, you must do whatever possible to put yourself in a position to succeed.
A lot of this comes down to great rental property accounting. Let's look at five key accounting practices that all landlords should know.
1. Manage Accounts Separately
Accurately tracking income and expenses is a primary rental income management tactic. It's hard to manage everything if transactions are mixed with personal finances.
Instead of keeping one bank account for all investment activity, create a separate account for each rental property. Doing this lets you easily track the income and expenses and keep the finances for every property straight.
2. Track Every Transaction
You won't get an accurate account of your rental property finances if you don't track everything. You may see how much money is coming in every month. But without accurate expense tracking, you may not understand your actual profit in a rental analysis.
Make sure to track all income and expenses. Doing so will help you build accurate reports and help you minimize rental property taxes with deductions.
3. Build Financial Reports
A simple financial report will tell you a lot about your rental properties. However, there's only so much information you can get from this. It's hard to make more complicated financial decisions without more advanced reports.
There are several other financial reports available:
- Cash flow analysis
- Income forecasting
- Expense management
These reports will help you thoroughly examine your rental properties and implement other landlord accounting tips.
4. Automate Your Accounting
You want to reduce the amount of manual work in accounting as much as possible. Manually entering data takes up too much time and can lead to errors.
You can avoid many of these problems with automation. Invest in tools that streamline accounting, transaction categorization, rent collection, and other processes. You'll find yourself with better-maintained books as you automate more of these tasks.
5. Get Accounting Help
Even if you can manage your financial tasks yourself, you may not be an expert at finances or understand all the best practices in the field. That may lead to unoptimized books that cause you to make less desirable financial decisions.
For many landlords, it makes more sense to look for a property management company to manage the books. Many companies employ experienced rental accountants who will work to maintain a landlord's finances and give them everything required to succeed.
Invest in Great Rental Property Accounting
Although rental properties are a great way to invest your money and make extra income, you won't see a profit if you don't get property management accounting right. There are many variables to account for, so it's on you to manage your books correctly to ensure you make the best financial decisions. Follow the rental property accounting practices above to ensure your property finances are in great shape.
Of course, an experienced financial expert can help you implement the financial tips for landlords above. At PMI Ocean State, we offer financial services along with many other property management solutions. Contact our team to learn more about how we can help your Woonsocket property.
