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Rental Property Accounting: Why It Is Crucial During COVID-19

Rental property accounting isn’t the sexiest part of being a landlord. However, it is an entirely necessary admin task for the successful management of an investment property or property portfolio. Having the right system in place will save you time and money while enabling you to plan more effectively for the future and manage your finances through the current crisis. We’ve organized some answers to common questions.

Questions about the coronavirus pandemic?

Visit the Coronavirus Legal Center and ask a lawyer today.

How do you manage rental property cash flow efficiently?

Your cash flow is how much income you have after all the bills have been paid; it’s the money that under normal circumstances you’ll be able to pocket as profit at the end of the day. In general, having a clear understanding and overview of each investment property’s cash flow will allow you to make informed decisions around saving for retirement or re-investing in additional opportunities.

If you don’t keep careful records of your income and expenditures, you can quickly lose track of where the money is going. You’ll be unable to determine actionable steps to improve matters.

Properly tracked and understood cash flow is an essential part of creating a profitable business especially when times are tough and your business’ income is challenged.

How can you avoid missing deductions?

One of the benefits of running a rental property is that you can claim up to $25,000 worth of expenses per year against your rental income, as long as you are active in the property’s management. 

Because of the nature of the current crisis, many tenants are struggling to pay rent, which in turn is stretching the finances for many landlords. Deductible expenses, such as management or accounting costs alongside depreciation and travel expenses can, if managed properly, help ease the financial strain for landlords.

The right rental property accounting system will help you ensure you don’t miss any claimable deductions which could save you thousands of dollars each year.

Why is it so important to file accurate claims?

In the current climate, your accounts are potentially going to look a little more complex than usual with missed, late, or even waived rent payments (for those landlords who can afford it). Some landlords will be taking advantage of mortgage forbearance or additional financial aid to help pay their bills. 

All of this needs to be accounted for, not just so that you understand your portfolio’s cash flow, but to ensure that at the end of the year, you are able to file an accurate tax claim with all the necessary supporting information and documentation. Without this, you may not be able to take full advantage of rental deductions, and you may encounter problems if you are audited by the IRS.

What’s the best way to keep great rental property accounts year-round?

We’ve talked about why it’s important to keep excellent financial records for your rental properties. The question remains, how?

There are plenty of methods that landlords use, including spreadsheets and accounting software. One alternative option is to use a rental property-specific software that allows you to track income and expenses. 

Determining which software is right for your needs can be a challenge. Ideally, the software you choose will allow you to track income and expenses on an organization, property, or unit level. Additionally, it should enable you to track income and expenses on-the-go, so that you can record deductible expenses instantly, with less risk of forgetting details or misplacing receipts. Property-specific softwares have added time-saving benefits, such as automating communications and managing tenant screening.

What if my tenants are unable to pay rent due to COVID-19?

These are unusual times. Where managing rental income used to be all about incentivising timely payments and punishing late rent; to get through this crisis, we need to work together. 

Late rent payments can put a huge financial strain on a landlord, however, with some states extending their eviction moratoriums, a landlord’s usual recourse for late rent may not be an option. Instead, landlords need to communicate and work with their tenants to find an arrangement that works for both parties. With this in mind, it’s advisable to acquaint yourself with COVID-19 financial relief at the local, state, and federal levels. 

Whatever actions you take to mitigate the financial implications of COVID-19 on your rental business, excellent rental property accounting remains a necessary priority. Those landlords with the best systems in place will come out of this crisis stronger for it.

Landlord Studio
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