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Rental Property Accounting & Bookkeeping 101: Landlord’s Guide

Rental property accounting 101: A landlord's guide to managing finances
by Brad Cartier, posted in Finances

In most cases, rental property accounting is not why people get into real estate investing. It’s admittedly not the sexiest topic. But managing your money well can lead to tax savings, increased rental income, lower expenses, and more overall ROI. Poor money management can lead to overpaying taxes, lost rental income, higher expenses, and low ROI. But what are the tried-and-true ‘best practices’ for rental property accounting that savvy landlords follow, and why?

Let’s start by getting an overview of the basics of rental property accounting, then discuss the different accounting apps you can use to streamline your record-keeping; how to think about banking; and finally, how to build your accounting team as you scale.

Rental property accounting basics: Record-keeping

As you know, there are significant tax benefits to owning rental property: depreciation and deductions being the more powerful. But in order to prove that you qualify for certain tax benefits, you need to keep stellar records. Here’s a few critical record-keeping tips to help you conquer the early stages of your rental property accounting.

Receipts: No longer do you need to keep a shoebox with all your paper receipts. Digitize them! Use one of many apps out there that can help with this and develop a system of record-keeping that will allow you to easily access records when you need them. For instance, I append each file title with the date and property address before I place it in my Stessa Documents folder dedicated to that specific property.

Rent collection: Consider online rent collection options and be sure to use a financial tracking application to automate the management of your property’s financials. Many landlords begin by using tools like Cozy for this task.

Understand the metrics: Accounting is also about being able to benchmark how your property is doing financially. Understand the key real estate investing metrics that will allow you to properly audit each property to understand where you can save money and improve your revenue.

Notices and bills: Again, there’s no reason to keep paper copies of these different types of documents unless for legal reasons. Be sure to quickly digitize all that you can and file it in your digital filing cabinet for tax and auditing purposes.

Rental property accounting apps

There are so many tools out there that can help you be better at rental property accounting. Some are designed specifically for real estate accounting, some are not. Here’s a quick list of some of the rental property accounting apps that will help you improve your tracking and automation on the financial side of your business.

Stessa: A digital platform for property investors to manage, monitor, and communicate the performance of real estate assets. The great thing about Stessa is that it was created by real estate investors. Stessa allows users to easily keep track of property performance, finances, and the paper trail that comes with real estate investing—in one central place. Stessa even tracks income, expenses, and provides you with dozens of critical investing metrics and tax-ready documentation. Oh, and it’s free!

stessa transactions webpage

Quickbooks: This is a general accounting software used by businesses in all industries. It can track and manage all your income and expenses. Landlords have turned to this platform to manage their rentals as you can track rent payments, pay contractors and property managers, and audit fees and property maintenance bills.

Appfolio: Appfolio is a full suite property management software. Appfolio is therefore a powerful tool for landlords and property managers to keep track of tenants, properties, payments, word orders, and more. Appfolio does have some basic accounting features, such as deposits, online payments, automated late fees, and more.

Buildium: Similar to Appfolio, Buildium is more of a full-fledged property management platform than one specifically designed for rental property accounting. Buildium offers accounting features such as company financials, payment tracking, accounts payable, and more.

Rental property banking

There are several critical components to rental property accounting, and banking is certainly one. Here are a few quick tips to help you better conceptualize how your banking framework should be set up as you grow and scale your real estate investing business.

  1. Keep your personal life out of your rental property business! There’s absolutely no reason to have your rental income mixed in with your personal accounts. Create a separate personal account solely for your rental business, and even consider an LLC as you grow.
  2. Consider different accounts for each property. Bank accounts are cheap, and sometimes even free, so make use of these to better silo the finances of each property. Have separate accounts for each one, and make sure to link those accounts to the above chosen rental property accounting app.
  3. Use a broker. Banks are great for some things, and not that great for others. Mortgages tend to be one of those bank offerings that are fraught with friction. Unless you have an established and effective personal relationship with a local bank, consider tapping into a broker who has a network of lenders for investors considering their mortgage options.

Final thoughts and scaling

As you implement the above rental property accounting best practices and scale your portfolio, you will thus be required to grow your finance team. First, establish good accounting hygiene when it comes to your rental property record-keeping, then use accounting software to help automate most of your finances. Next, your banking needs to be built out to optimize for the above real estate accounting best practices.

Once you’ve built out this framework, you can then start to think about scaling and building your accounting team. An accounting team is not just one accountant. You need an accountant who is an established real estate professional accountant. There is a big difference. You will also require the services of a banking professional, broker, and even lawyer to guide you through aspects associated with setting up an LLC to optimize for taxes and liability.

Rental property accounting is truly the backbone of any great real estate business that has proven any type of scale. Get your own accounting practices in order—your profits (livelihood) and sanity depend on it.

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