It isn’t enough to buy a house, rent it out, and expect to make money. If you want your rental investment to be successful, you must treat it as a business. This means avoiding common mistakes when managing your Little Elm rental accounting.
This guide will help you avoid potentially costly mistakes when managing your rental investments.
Mixing Personal and Business Finances
Before you do anything with your rental property, you must open separate bank accounts. Consider opening a business checking and savings account. You will also want a business credit and debit card.
Having separate accounts ensures that you don’t confuse your business money with your personal money. It also helps to protect your personal finances. When they’re mixed, your personal finances could be at risk in a rental-related lawsuit. The argument being that your rental business and personal finances are one and the same.
Having a savings account is important because you can earmark money for future rental maintenance and repairs. You can also use this account to safely hold security deposits.
Having One Account For All Properties
While this isn’t relevant if you only have one rental property, as soon as you have two, you need to separate them. This allows you to manage your income and expenses on a per property basis. By doing this, your life will be much easier when tax season comes around.
Keeping the finances for your properties separate will help you better manage your property portfolio. You’ll be able to identify properties that are or aren’t as profitable and address this.
Not Understanding Tax Forms
Get familiar with the related tax forms before you start managing your rental properties. This will help you understand what you’ll need come tax time. With a working knowledge of the forms, you can ensure your booking tracks the necessary information. Tax time will be easier when you have the numbers you need.
If you have an employee or independent contractor work on your properties, you need to have a W-9 or 1099. This is much easier to get at the start of your working relationship than months later when you’re trying to do your taxes. The penalty for not having these forms is expensive, and can severely hurt your rental profits.
Not Embracing Technology
You’re highly encouraged to embrace digital services. Look for a document management system that you can upload PDF or image files to. Then you can easily save and organize every contract, invoice, and payment receipt. This reduces paper clutter and ensures you don’t lose anything.
It’s also smart to have a booking software. You can then automate tasks and easily pull reports on the financial performance of your properties. Look for a software that’s designed to work with the number of rental properties you own. One that’s scalable is smart if you’re planning to invest in more real estate in the future.
Trying to do Everything Yourself
Unless your career is one in the financial sector, it’s likely that you lack the sophisticated accounting skills required to optimize your rental property accounting. Consulting a CPA who has expertise beyond your own will ensure your rental property success.
They can advise you of accounting systems, educate you on best financial practices, and help you perform regular analysis of your rental property portfolio
Get Assistance With Your Little Elm Rental Accounting
There’s another option for managing your rental property and Little Elm rental accounting. Working with an experienced and qualified property manager can help you avoid many of these mistakes.
Your property manager can make arrangements for required tax forms by managing contractors for you. They can send you monthly or quarterly statements on the work that was done. You can also use the management company’s software to understand the financial health of your rental properties.
Contact our knowledgeable team today and learn about how we can help you avoid the financial mistakes of beginner real estate investors.
