A landlord's life tends to revolve around paperwork. From tenant records to rent payment slips, there are plenty of documents you need to handle. The level of care these documents require can vary, but when it comes to rental property accounting, you must ensure accurate record-keeping.
You might be wondering why you need to keep a keen eye on the accounting side of things, especially if you have good tenants who pay rent on time. As long as the rental income is streaming in, why bother keeping the records?
Well, here are a few crucial benefits that will make you embrace record-keeping.
Property Financial Performance
As a private landlord, you might not see our rental property as a business, but it is. And like every business, it's essential to check the cash flows.
Keeping property accounting records helps you monitor the financial performance of your properties.
If someone asked you how much your property generated in gross rental income in the last 12 months, would you have an answer? If it was fully-occupied during that period and every tenant paid up, you can do some quick math and find the figure.
But what if the question changes to net income? Now you'll need to know the property's expenses. If you weren't keeping track of the expenses, you'll be at pains to calculate your net rental income.
Tax Compliance
Rental income is taxable, which means you have to report your earnings to the IRS. Your reporting must be accurate; otherwise, you'll only have yourself to blame when the taxman comes after you for misreporting or even tax evasion.
Good record-keeping in property accounting gives you a clear picture of your income, so you'll be in a good position to avoid tax reporting mistakes.
Plus, landlords are entitled to a raft of tax breaks. These include expenses incurred during landlord travel, mortgage interest, property repairs, legal fees for eviction, property worker wages, and depreciation.
To make the most of these deductions, the IRS isn't going to accept any random figures you throw its way. It will need verifiable records to support the claims.
Property Sale
You might want to sell your rental property down the road. Whatever your reason for selling, you'd still want to close a good deal.
Several factors will impact the value of the rental, but your records will go a long way in helping you make a good sale. Prospective buyers will want to see the property's historical financial performance, for example. With the right records, all you need to do is avail them.
Sound Rental Property Accounting Requires Good Record-Keeping
Rental property accounting is one of your landlord's duties, and a big part of the job is keeping accurate records. Understandably, this is easier said than done, especially if you're a busy landlord.
This is where a full-service property management company comes in handy.
At Austin Property Management, we have real estate professionals with tax and accounting backgrounds, but you'll also get marketing, maintenance, tenant screening, and other services.
Check out these owner resources, or call us to learn more.
