To have a successful investment property, you need to treat it like a business.
In an average year, US landlords earn hundreds of billions of dollars in rental income. If you want to be a top earner, you need good rental property accounting. There's nothing easy about keeping track of income and expenses, but taking the time to do it right pays off in the long run.
In this post, we're going to give you a quick guide to doing rental property accounting right. From recording expenses and tax deductions to preparing financial statements and tracking property income, keep reading, and you'll make your rental property more lucrative than ever.
Keep Personal and Property Income Separate
A lot of new property owners are guilty of being loose with their property income. Combining your personal and property income will lead to a lot of confusion when it comes to doing taxes for your property.
Always keep your property income in a separate business account and open separate accounts for each property. This lets you see clearly what's coming in and going out for individual properties, so you can work to maximize your rental property income.
Bookkeeping Income and Expenses
Whether you've got one single-family property or a few multi-family buildings, you need to keep your finances organized with good bookkeeping. There are various methods for tracking income and expenses, but you can always just set up a simple spreadsheet or use accounting software.
One big thing will be choosing the way you track things. The accrual method will have you tracking income and expenses as they happen. The cash method will have you tracking them as they hit your account.
When you're dealing with smaller investments, the cash method is preferable. It tells you exactly how much cash you've got on hand at a given point in time.
Dealing with Taxes
Understanding tax forms for rental properties can be tricky, but understanding them will make your life easier. The W-9 and 1099 forms, for example, relate to any employees and non-employees that you've got working on your properties.
You'll also need to go over important tax deductions. Certain expenses, like mortgage interest, operating expenses, depreciation, and repairs, can all be deducted. It can be helpful to work with a property manager or tax professional to gain a full understanding of the deductions available to you.
Property Managers and Rental Property Accounting
These tips should help you deal with rental property accounting effectively and efficiently. That said, accounting can be a full-time job and not every property owner has time to do it alone. That's where a solid property management company comes into the picture.
A full-service property manager will handle everything to do with your rental property. This includes things like maintenance, tenant screening, and rent collection. It also includes rental property accounting.
At PMI North Jersey, we can help you maximize your rental property income. To learn more about our services and how we can help you, contact us today.
