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Get
Your Sums Right the First
Time with
Our Rental Property Accounting Guide
Are
you boggled by all the confusing maths that come with rental property
accounting? Find out how to calculate your rental income and expenses
quickly and easily with our step by step guide right now.
Why
is Rental Property Accounting Important to Landlords?
Just like
every other type of investment, you will need to crunch some
numbers to tell if your rental property is a gold mine or money sucking
liability. As a rental property investor and owner, you should always
be aware of the financial well-being of your real estate.
If you are losing money every month, then it's time to take effective
steps to slash your property expenses or boost your rental income.
Calculating your rental profits and losses is required for filing your rental
property tax.
Before you are allowed to claim any tax breaks or benefits, you will
first have to prepare your cash flow and income statement.
The
good news is that accounting for rental property is highly doable even
if you are not a numbers person. On top of that, you can also turn
to rental
property software to make it even quicker and easier.
How
do You Calculate Your Rental Cash Flow?
The basic
rental property accounting formula for calculating your
rental profit or loss is very simple actually:
Rental Cash Flow
= Rental Income - Rental Expenses
The main issue here is to know what makes up your rental expenses and
how to calculate the depreciation of your rental property.
Most
of the time your rental income is simply the amount of rent that
you collect from your tenant. If your tenant pays you with goods or
services instead of cash, this will be counted as your rental income as
well.
However in
some cases you will receive other types of
additional rental income such as fees that your tenant pay you for
allowing them to sublet your rental property or penalty fees that your
tenant has to fork out for ending the rental agreement early.
If your
tenant requests for any home improvement or repairs works that
are not required by law or the rental agreement, the money that he pays
you will also be counted as rental income.
While most landlords calculate their rental profits and losses every
year for tax purposes, it's a good idea to update your accounting
figures every few months if you
have the time and want to watch over the financial health of your
rental property more closely.
What
Exactly Makes up Your Rental Expenses?
When it
comes to your rental property expenses, you will usually have
to include a wide range of costs including:
- Mortgage
payments and interest of your rental property loan. This will generally
be your biggest and most important expense
- Rental
property and landlord insurance premiums
- Repair
bills for property fixes and maintenance
- Fees paid
out for the services of real estate professionals such as landlord
lawyers, contractors, property managers and real estate agents
- Utility
bills such as electricity, water, sewerage cable or waste disposal fees
that you are responsible for paying
- Advertising
costs and fees for finding new tenants
- Wages and
worker's benefits if you hire employees to manage your rental property
- Traveling
expenses for collecting rent or property management
- Home office
expenses if you set up one to manage your rental property
- Vacancy
loss which is the amount of rent you will end up losing if your rental
property goes without tenants for a period of time
A
tried and trusted way to save time on your rental property accounting
is use a property management software with excellent accounting
features. You can also avoid a lot of unnecessary calculation errors
especially if you are new to accounting or own multiple rental
properties.
Buildium
is an online property management program that is highly recommended by
landlords for its easy and fully automated accounting features. It also
comes with a complete
database to store your important tenant and property information.
If
you want a more powerful software that will allow you to carry out
detailed accounting easily and generate helpful reports on
your
rental revenues, then you should consider the popular LandlordMax
instead. Click
here if you want to compare both software to see which one
will be better for you.
Are you ready to see our step by step example of rental
property accounting with actual figures plugged in?
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