Did you know that the average real estate investor in California makes over $75,000 per year? The highest earners make $117,441 annually in the state.
If you become an investor to make this type of cash, you need to be able to manage your rental property accounting records effectively.
Even if you don't have a background in accounting, there are helpful tips that Brea landlords can follow. To find success and keep your records up to date, implement these tips.
Regularly Update Accounting Records
Keeping accurate and up-to-date records is the key to successful rental property accounting. Regular updates, at least monthly, can keep you on track with your finances.
This habit prevents unrecorded transactions from piling up. Without regular updates, you'll experience more inaccuracies, causing stress during tax season.
A rental property manager with accounting experience can help you with your records. While they keep things updated for you, you can spend time furthering your real estate investment portfolio.
Understand Income and Expenses
Having a clear understanding of your income and expenses is essential. While many people think that income only comes from collecting rent, this isn't the case. You can make income through late charges as well.
On the expense side, you'll likely be paying for property management fees, regular maintenance, and property taxes. Recording these monthly allows you to see losses and gains.
Rental properties have a lot of recurring income and expenses that can be easily automated.
Since you know where a lot of these finances are coming from, you can automatically place them in their corresponding folders with the right rental property accounting software.
Separate Business and Personal Finances
There are various ways to track finances, but you'll find it very difficult to do so without separate accounts. Mixing business and personal finances only leads to messy accounting.
Open a separate bank account for your rental business. Separation simplifies financial tracking, making it easy to present your business finances in a tax return.
If you have more than one property, it's beneficial to open a bank account for each property. Separating property finances allows you to see what is working for one building versus another.
Save Receipts and Financial Documents
Accounting and bookkeeping is a tedious process if you have a lot of receipts and financial documents. Luckily, property management software can maximize profits by digitizing receipts and other financial documents.
The process of saving receipts is essential for tax purposes. If you get audited, the IRS will want to see your documentation.
To digitize receipts for easier recordkeeping, use a scanner or take photos. Using a receipt scanner app is helpful for landlords. This is a task you can outsource to property management services as well.
Rental Property Accounting Tips to Implement
If you haven't already implemented these rental property accounting tips, you're missing out. Following this guide can keep your accounting in order so you don't have to panic during tax season.
If all of this seems like too much to handle, hire a rental property management company to help. At PMI County Line, we provide our clients with excellent services that maximize profits in Brea, CA.
Ready to make property management manageable? Contact us today to get started.