Not taking your rental property ownership and landlord role seriously jeopardizes your entire investment. Too often, landlords do not treat their role as an investment or a business. Because of this, they become vulnerable to making rental property accounting mistakes.
Look out for these five common mistakes and follow the accompanying landlord tips to correct your landlord accounting practices.
1. Co-Mingling Accounts
The most common mistake landlords make is mixing money. This could include combining rental money with personal finances or rental income with other business money. It could also be holding security deposit money in the same account as your rental operating finances.
Create a separate account for managing your rental property. Follow all Maryland laws regarding properly collecting and holding a security deposit.
2. Not Using Accounting Software
Using software designed for property management is essential for optimizing financial tasks. First, it will come with features that address the unique property management needs. Second, it will have built-in reports that you need as a landlord.
A cloud-based system is your best option. This lets you manage your accounting at any time and from anywhere.
3. Not Saving Your Documents
Document management is essential for knowing what is going on with your rental property. Keeping your current tenant documents organized can help you avoid disputes. You can quickly and easily reference your application and lease documents to provide the final answer to a potential conflict.
Saving previous tenant documents is crucial if a tenant files a claim post-lease. It can also help you track the performance of your rental.
4. Skipping Reviews, Reports, and Reconciliations
The key to rental bookkeeping success is regular oversight. If you only occasionally look at your accounting software, you don't have a good handle on your rental finances. Create a routine to pull reports, review, and reconcile your accounts.
Doing this can ensure your rental property remains profitable. That way, you can calculate a rental increase thoughtfully and purposefully.
5. Incorrect Property Tax Filings
You need to report your rental income on your federal and state taxes. You may also be able to make claim deductions and/or credits. Failing to report income or making incorrect claims can get you into trouble with the IRS.
Paying property taxes is also a part of owning rental property. Not doing so can put your ownership at risk.
Having a document management system is essential. You need to have the documents necessary to validate your filing if the IRS decides to perform an audit.
Avoid These Rental Property Accounting Mistakes
Whether you are a new landlord or have owned rental property for years, you can easily make these rental property accounting mistakes. Start by creating separate accounts and implementing property management software. Develop a system for managing your documents and accounts.
You can achieve all these things by working with the professional team of property managers at PMI Chevy Chase. We provide clients with an online management portal and regular financial reporting.
Take control of your rental property accounting by working with a professional team of property managers.