Careful record keeping and precise documentation is an important but often forgotten part of renting out a home. Your ROI actually depends on solid accounting techniques. If you’re still managing your money on a legal pad, it’s probably time to upgrade your bookkeeping procedures.
At Bell Properties LA, we are sharing some basic things to consider when you’re preparing to track your financial performance as it pertains to your rental home and the money you’re earning.
Tip 1: Organize Income and Expenses
At the simplest possible level, you’ll need to track your income and expenses.
When it’s time to file your taxes, you’re going to need to demonstrate how much you earned on your Southern California rental property and how much you spent maintaining it. This has to be clear, accurate, and transparent. Even if you work with an accountant or a CPA, you’re likely the one who will be collecting the rent and paying for repairs.
Make sure you can clearly see what you’re earning and what you’re spending on a monthly, quarterly, and annual basis. Misjudging even a small amount can lead you to bad decisions that hurt your ROI.
Tip 2: Get Comfortable with Budgeting and Forecasting
Budgeting is incredibly important, especially when it comes to things like maintenance. You should set aside a maintenance reserve, if you can. Put a small portion of the monthly rent you collect into a reserve fund so you’re prepared when you have to replace a water heater or pay for an electrician.
Set up a budget for recurring expenses you can plan on, such as landscaping or pest control. Forecast when you’ll have to make big expenditures. Plan for your new roof, for example, and estimate the lifespan of your air conditioning unit.
Tip 3: Invest in Accounting Technology
Southern California Property management accounting software has come a long way in the last 10 years.
There are a lot of great software programs out there, even for individual landlords who only have one property or a handful. If you keep everything digital, you can access it from anywhere in the world, and that can be extremely helpful when emergencies pop up.
Look for programs and platforms that are accessible, clear, and transparent. If you find yourself having to go to court, for example, you’ll want to be able to share an accounting breakdown for a tenant you’re evicting for nonpayment of rent. Dragging your paper ledger into the courtroom is not as convenient as printing a spreadsheet.
Tip 4: Consider Professional LA County Property Management
There are a lot of excellent reasons to use a professional LA property management company, and accounting services are one of them. A good Los Angeles area property management company will provide accounting and keep you in the loop. You should expect monthly financial statements, reports when you need them, and an online portal that allows you to view maintenance invoices, lease documents, and security deposit funds at any time.
We would be happy to talk more about our accounting practices or share additional tips about how to stay organized financially. If you have any questions, please contact us at Bell Properties.