Rental Expense Management Basics
Rental Expense Management Basics: Tips You Need to Keep in Mind
Managing a portfolio of rental properties is involved and it might be tempting to let less desirable tasks like reconciling expenses or filing receipts fall to the wayside. Failure to keep track of expenses can result in expensive mistakes. While you may hire an accountant or use software to get the job done, it helps to know which records you need to keep and their accuracy. Kevin Bartlett & Associates presents some advice to help you out.
Rental Property Bookkeeping
Record keeping is an important aspect of any business and real estate is no exception. These records are useful in analyzing the financial performance of the business. To optimize performance, you need to set up a solid bookkeeping system.
The two types of records that you need to keep are:
- An income and expenses record for each rental property in the form of a profit and loss statement
- Supporting or backing up documents in the form of receipts and bank statements to prove the accuracy and legitimacy of your rental income and expenses
Rental property expenses you need to keep
Property expenses are referred to as “line items.” They vary depending on real estate investor and property type and can fall into one of two categories:
- Maintenance, repairs, and utilities
- General operating expenses
Tips on how to track rental property expenses and the best resources you can use to make your job easier include the following:
- Tip #1: Understand your property expenses
Rental property expenses include mortgage, tax, and insurance. Knowledge of your rental property expenses makes it easier to calculate the real financial performance of your property. It also helps you avoid errors when filing tax returns and claiming deductions. If you are struggling to understand your property expenses, you can consult a financial advisor or accountant.
- Tip #2: Learn which expenses you can claim deductions
You can reduce your tax bill by claiming deductions for certain expenses including legal fees, contents insurance, council tax, letting agent’s fees, service charges, and water, gas, and electricity. However, you cannot claim expenses for capital expenditure like buying the property or adding an extension.
- Tip #3: Keep abreast with changes in legislation
Keep yourself up to date with any new legislation that may affect your tax payments and expenses. You can hire the services of an accountant or financial advisor to help you.
- Tip #4: Request invoices and receipts and file them
For accuracy and verifiability, keep a proper record of all invoices from contractors and expense receipts.
How to track expenses
A simple spreadsheet may suffice if you are managing one or two rental properties but more capable systems become necessary as your portfolio grows. Setting up a robust rental property management system can ease your expense tracking and help you make the most out of your investments.
Helpful software you can use
Mobile apps and trackers have made it easier to manage rental properties. They allow you to track receipts, record daily bookkeeping items, create reports and prepare tax returns. Their benefits range from time-saving to providing a real-time report on the progress of your real estate portfolio with alerts on late payments.
QuickBooks Online Advanced for example is software for invoicing and so much more. It makes it easy to track where your money is going. You can connect your bank and PayPal accounts, track and save receipts, and this system will even automatically sort expenses into specific tax categories so you can come fully prepared when tax time rolls around.
Record keeping can be overwhelming but when done correctly, it has significant financial benefits for any rental property manager. Benefits include saving time during tax season, forecasting future expenses, and avoiding debt and fraud. With the right system, you can track expenses and rental income for every property and determine the best strategy for fine-tuning operations to boost your bottom line.