Most people love certain parts of their jobs while disliking other parts. If you own rental properties, you can likely relate. But what task is it that you don't like?
For many property owners, it's the rental property accounting. Accounting isn't known for being a 'fun' activity, but it's necessary.
Your accounting records reveal your profitability and taxes. It also helps you budget and manage your cash flow.
Here are five essential accounting tips to help you if you're struggling with this task.
1. Don't Mix Personal With Business
The number one rule when running any business is to keep your personal money distinct from business money.
When you collect income from your rental property business, keep it separate. When you pay bills for your business, keep them separate.
You'll end up with a mess on your hands if you mix these things. Instead, keep them separate to avoid having to separate them later.
2. Track Every Penny
One of the golden rules of accounting is to track every penny. First, this applies to rental income. You must report all the money you earn from your rental property business as revenue.
Secondly, it applies to your business expenses. You can offset your revenue with your property expenses.
The best way to do this is to categorize your expenses. Create a system that lets you place all your expenses in categories. This allows you to track your spending to monitor your budget.
3. Keep Up With the Records
As with anything, procrastination leads to more work. Avoid procrastinating with your accounting.
Instead, keep up with the records. Spend a few minutes a day organizing and tracking the expenses.
You can also hire a property management firm to handle it. Hiring a property manager offers many benefits, including this one.
4. Choose Cash vs. Accrual
You'll also need to choose an accounting system for your records. There are two primary ones:
With a cash system, you only record income when you receive money. You only record expenses when you pay money for them.
An accrual system requires more work than a cash system. It involves recording income when you earn it, not necessarily when you receive it.
It also requires recording expenses when you incur them, not necessarily when you pay them.
5. Use Software for Your Rental Property Accounting
Finally, handling property bookkeeping is easier when you use accounting software. You can use it to record income and expenses.
You can also use it to manage your security deposits and create budgets.
Using software makes handling your tax returns easier. You can use it to create reports and much more.
Learn More About Property Management Services
Seeking help with your rental property accounting is smart. Hiring it out alleviates the work and stress. It also ensures that it's done correctly!
PMI Heart of Texas is the company you need if you own properties in the Austin Area. We are locally owned and operated but are part of a franchise with over 20 years of experience.
We offer reputable services with a focus on professionalism. Reach out today to learn more about how we can help.