If you’re a small-scale real estate investor (think a handful of properties or fewer), then DIYing your accounting can be a good way to save on expenses and gain better insights into your portfolio.
Still, that doesn’t mean it’s without risk. Unless you’re a CPA or an experienced financial pro, managing your accounting as a landlord can be pretty overwhelming. And just like with any business, one financial misstep could cost you (hello, IRS audit!).
Are you handling your rental investment accounting tasks solo? Want to make sure you’re doing things as efficiently as possible? This guide can help.
General tips for more efficient accounting
Accounting as a landlord can get complicated the more properties you hold. There’s rent coming in, and repairs and maintenance going out. Throw in security deposits, pet deposits, and application fees, and you need to be super-detailed with that ledger to keep it all straight.
One trick that can help? Open a separate bank account for each property you own. Use it to deposit rent checks, and pull from it for any property-related costs, like repairs, insurance, and monthly mortgage payments. At the end of the year, all you have to do is look at your statements for a detailed list of expenses, as well as a clear picture of what your rental brought in.
Additionally, you can:
- Download a scanning app. You’ll need to keep expense receipts if you’re going to write them off come tax season. Though storing them in a shoebox could certainly work, it’s not the most effective way of doing things. Instead, download a scanning app like Scanner Pro or CamScanner and start using your phone to digitize and save those receipts on the spot.
- Set up automatic payments. If you own multiple properties, then you’re dealing with multiple mortgage payments, insurance premiums, and more, month after month. Instead of dealing with these manually, set up automatic payments to come straight from your bank. As long as they’re scheduled to come from the correct, property-specific account, it should make managing things significantly easier. (Just make sure you only do this for set, recurring costs. Setting up autopay on bills that vary can cause serious cash flow issues).
- Invest in a Dropbox folder. Since you’re scanning receipts, records, and tax forms now, consider investing in a secure Dropbox folder where you can easily store and organize these scans. Set up sub-folders for each property, tenant, and contractor, and use it as your own digital filing cabinet of sorts. A great benefit? The Dropbox app lets you access all your docs on the go, too.
If you plan on writing off mileage, you may also want to download an app like MileIQ, which can help you track the miles you use during the course of business. It’s super easy to use; all you do is swipe left if you’re on a personal drive or right if you’re driving for business. The app does the rest.
Landlord accounting tools
Of course, the right accounting platform can keep you from doing all of the heavy lifting on your own. Fortunately, there are dozens of landlord-friendly accounting tools that can help with everything from expense and return on investment (ROI) tracking to maintenance management and collecting rent.
Here are some of the top options:
- Buildium, which helps you manage accounting, business operations, and company financials.
- AppFolio, an all-in-one platform that streamlines not only your accounting, but also marketing, leasing, and managing your properties.
- RentalHero, a simplified rental accounting platform that starts at just $9.95 per month.
- Propertyware, a property management tool that helps with tenant screening, marketing, accounting, and more.
- TenantLedger, which offers accounting, reporting, leasing, and property management tools.
If you’re up for using non-rental-specific accounting software, Wave, Xero, QuickBooks, and FreshBooks are all affordable and popular accounting options that offer both desktop- and mobile-based options.
When in doubt …
If managing the ins and outs of your rental investments gets to be too much, don’t be afraid to outsource the work to a qualified accounting pro. If they’re really great at what they do, they might even pay for themselves (by maximizing your tax write-offs, of course).