Guide to Rental Property Bookkeeping

Real estate and rental property bookkeeping might not be the most exciting element of investing in real estate, but it’s a necessary mechanic within the real estate machine. Some real estate investors might hire an accountant or professional bookkeeper to keep track of their property expenses because understanding these figures is critical for properly running a business. With proper bookkeeping strategies, rental property owners and real estate investors can reduce their expenses and optimize their rental income potential. 

In this article, CT Homes will explore what bookkeeping for real estate or rental property involves, how real estate bookkeeping works, as well as some tips and strategies for those who wish to successfully bookkeep for their real estate investments. 

What is Bookkeeping for Real Estate or Rental Property?

Real estate bookkeeping, whether for a rental property or other real estate investment, is how investors and owners can understand the true value of their property. Someone who specializes in real estate bookkeeping is tasked with keeping an accurate record of rental income, business expenses, asset values, liabilities, and potential depreciation factors. These professionals keep track of this information to correct accounts for all assets to keep records accurate and identify potential areas for further investments or cost savings. 

Oftentimes, real estate bookkeeping requires financial payments and transitions to be reconciled monthly, correctly classified as deductible or capitalized expenses, as well as the task of reporting equity to rental property or real estate owners. Real estate bookkeeping requires a specialist to generate many financial reports that reflect property values, such as rental income statements, cash flow reports, capital expense statements, rent rolls, bank reconciliations, and profit & loss statements. 

What Does Rental Property Bookkeeping Track?

Numerous transactions take place within the real estate and rental property industry that bookkeepers will record to simplify future tax seasons and help owners understand the functions of their business. Some bookkeepers will keep track of the surplus of information manually, or automated using a rental property accounting system that automatically tracks and updates expenses and income. Some common transactions and expenses real estate bookkeeping accounts for include, but are not limited to: 

  • Monthly rent payments
  • Rental invoices
  • Monthly mortgage payments
  • Vendor invoices
  • Late fees
  • Security deposits 
  • Property tax payments
  • HOA dues
  • Condo fees

Tips for Successful Real Estate Bookkeeping

Developing proper financial literacy and real estate bookkeeping shouldn’t be swept under the rug as accurate bookkeeping can transform any business’ operations. The benefits of keeping accurate books of financial information are endless, including potential tax preparedness, business metric/cash flow awareness, job performance understanding, and credit score and asset management. Let’s explore some tips for successful bookkeeping to ensure your real estate investments are optimized and accurate. 

Keep All Personal Expenses Separate from Property Expenses

This might seem obvious to experienced real estate investors, but it’s imperative for rental property and real estate investors to keep their personal expenses completely separate from any business expenses. Opening up separate bank accounts and lines of credit is highly suggested to avoid any confusion. When personal and property expenses become merged, this is referred to as “commingling funds” and is a big no-no in the tax world. When expenses become blurred between personal and business-related, the IRS can easily flag the property for malpractice. By keeping personal assets separate, whether manually or via an LLC, if the property suffers financially it won’t reflect on your personal capital as dramatically. 

Keep Copies of All Receipts

At the core of all successful bookkeeping for real estate and rental properties is keeping track of receipts. This entails not only keeping an accurate record of receipts and invoices but having numerous copies of this information for referrals and comparisons down the line. Many experienced bookkeepers will keep an electronic version of receipts, whether manually or through accounting software that’s able to scan receipts for ease of searching through receipts later on. As for filing taxes, the IRS requires businesses to keep track of any receipts over $75 for expenses. 

Properly Categorize Expenses

While keeping track of receipts is important for successful real estate bookkeeping, the main goal of recording that information is to properly categorize all transactions that go into and out of the property. Without categorizing expenses, bookkeeping can become a mess impressively quickly. All expenses ultimately calculate taxable income, so bookkeepers should categorize expenses based on the IRS’s required fields to accurately file their taxes each year. When sorting and organizing expenses, we suggest using these categories from the IRS’ Schedule E file for properties. 

  • Advertising
  • Auto and travel
  • Cleaning and maintenance
  • Commissions
  • Insurance
  • Legal and other professional fees
  • Management fees
  • Mortgage interest paid to banks, etc.
  • Other interest
  • Repairs
  • Supplies
  • Taxes
  • Utilities
  • Depreciation expense or depletion (capital improvements)

Keep Records Updated and Modernized

The reason why many accountants and bookkeeping specialists rely on technology to keep an accurate record of expenses is that updating information is much easier. Not only do many accounting software options provide automated updates and helpful features for recording and tracking expenses, but the process of using these systems is much more time-saving than sorting through a wall of file cabinets. Especially for those who might manage multiple rental properties, relying on technology is never a bad idea to keep accounts tidy. 

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Selling a Rental Property? Optimize the Real Estate Experience with CT Homes! 

Real estate bookkeeping might seem like a cumbersome task, but by understanding the benefits of proper bookkeeping real estate investors can maximize their potential profits and understand their business better as a whole. With these helpful tips, rental property and real estate investors can approach their property’s financial well-being with more transparency and awareness, saving money in the long run. CT Homes specialize in CASH AS-IS offers to help expedite real estate experience, but we are not tax professionals.

If you need assistance with rental property bookkeeping, please contact an accounting specialist. Contact CT Homes today if you’re interested in expediting the sale of a rental property!