Rental Property Bookkeeping 101: Tips for Successful Bookkeeping

Owning rental properties can be a lucrative way to make money from the housing market and set yourself up for retirement, but to be successful, you need to pay attention to the numbers. With the right tips, real estate accounting can be relatively simple. Check out these essentials:

1. Track the Numbers

As a landlord, you can deduct expenses you incur taking care of your rental property from the rent you collect, and that helps to lower your income on paper and reduce your tax liability. To ensure you don't miss any valuable deductions, make sure you are diligent about tracking your numbers.

Clear records make tax time less stressful, and perhaps more importantly, numbers help you to see how much you are earning from your investments and your efforts. Either track income and expenses as soon as they are incurred, or set aside a dedicated time once a week or once a month for bookkeeping.

2. Invest in Tools to Help With Bookkeeping

To simplify your bookkeeping efforts, invest in tools that help you track your expenses. For example, you may want to use an app that lets you take a photo of your receipts and upload them to your accounting records.

Additionally, you may want to look for a time tracking app that shows you how much energy you put into each property, or a mileage app that conveniently tracks when you're on the road for rental property - remember if you use your vehicle for your rental business, you can write off a portion of your vehicle expenses or the mileage you incur.

3. Separate Business and Personal Accounts

Open a separate bank account for your rental property so that you can easily see how much rent you collect and the expenses you incur.

Separating your business and personal expenses helps to ensure that your rental expenses don't get buried in your personal records and cause you to potentially miss a tax deduction. Also, interest expense on a credit card used for your real estate business is tax-deductible. Interest incurred for personal charges is not.

4. Automate as Much Bookkeeping as possible

Manually entering information into software or transferring numbers from one area to the next is time-consuming and often not necessary. To minimize the time spent bookkeeping, try to automate as much as possible.

For example, sync your bank account to your accounting software so the records are automatically ported over and consider setting up automatic rent collection online and paying your mortgages through autopay.

5. Categorize Your Expenses

When you file your tax return, you don't write down every expense separately. Instead, you write down the total amount spent in a variety of categories. To streamline the process, categorize your real estate expenses as you record them into the following sections: advertising, auto and travel costs, cleaning and maintenance, commissions, insurance, legal and professional fees, management fees, mortgage interest. repairs, supplies, taxes, and utilities.