There are 19.95 million rental properties in the United States. If you want to be a successful property investor, you need to keep your finances in order.
We're here to provide you with a brief guide full of essential accounting tips to make that process easier. Here's what you need to know.
1. Find a Good Accountant
If you're a first-time property investor, it's a good idea to find a good accountant that can inform you what documentation you'll need come tax time. An accountant that understands real estate investing will give you tips on what deductions you can claim, the current tax rules and regulations, etc.
Not all accountants are well-equipped to handle real estate investment matters, so do your research. Go to them with any questions you might have about the documentation you need or what to expect so you're not surprised when it's time to file your taxes.
2. Go Digital
Keeping paper statements has plenty of drawbacks. Paper files take up room, and they're easy to lose or accidentally destroy.
Make digital copies of all the transactions related to your investment property. Create backups so you'll have those records if you need them.
Creating spreadsheets is also a great way to keep track of expenses, income, and more.
Consider using a cloud-based storage system to keep records of important documents such as leases, tax returns, bank statements, invoices, and so on.
3. Have Your Property Manager Handle Expenses
Keeping track of expenses is a crucial skill for an investor. If possible, avoid paying out of pocket by having your property management company handle those costs by taking the funds from the rent they collect.
If you must pay for something, be sure to keep a summary and documentation so you can give it to your accountant.
4. Get a Summary or Report for Your Property
To maximize your investment, you'll need certain information, such as a profit and loss statement. This financial report lists your expenses, income, and profit or loss over time.
We offer digital and easy-to-understand monthly statements that make accounting easy. These reports outline all the activity on your property, including expenses, income, etc. Having access to these reports makes tax time much easier, as you can see everything at a glance.
Additionally, these reports will help you understand areas where you might improve and earn more, helping you make the most of your rental investment.
5. Understand Local Laws
If you don't want to get into any legal trouble, it's crucial to understand local laws. For instance, some states require you to keep security deposits in a different account.
That's true here in Minnesota, where a tenant's security deposit must be kept in an escrow account. Pet deposits are also usually kept in a separate account.
So, be sure you understand all state laws or speak to someone that can guide you.
Accounting Tips for Success
Managing your properties and becoming a successful real estate investor is much easier when you follow these accounting tips. The key is to have the right accountant on your side and to keep good records, so you're always prepared.
Connect with us here at 33rd Company to make financial account management, rent collection, tenant screening, and other tasks easy. Reach out to get a free rental analysis or get a management quote.