Poor property management accounting can cause you to lose a lot of money and destroy the wealth you worked hard to build. You’ll deal with unnecessary tax burdens and miss opportunities to reinvest your income if you don’t track your finances correctly.
According to Clever, 90% of real estate investors admit they’ve lost money on an investment at some point. That’s such a huge figure, and while every investor takes on some risk, poor accounting makes you more vulnerable to income loss.
It’s even harder to recover the amount you lose if your portfolio isn’t that diverse. Being smart about accounting will ensure you always have the correct numbers to guide every decision you make.
What Is the Meaning of Property Accounting?
Property accounting is keeping track of every financial transaction related to your real estate. The transactions are:
- Rent collection
- Security deposits
- Maintenance costs
- Utility bills
- Insurance
- Mortgage payments
If you’re a business owner, you’re already familiar with accounting. Property accounting isn’t necessarily the same as general business accounting because you may be tracking the finances of several units or tenants.
If your accounting tool lumps the finances of all the properties you own, it may become hard to see how each one is doing. You won’t have precise landlord financial data to help you plan.
Property accounting requires you to focus on the financial details of each asset you own, which isn’t what you would do with general bookkeeping.
What Is the Best Qualification for a Property Management Accountant?
Certified Public Accountant (CPA). If you’re serious about wealth protection, it’s always good to work with someone who’s a CPA because they understand more than general bookkeeping.
Look for a pro who has enough experience in real estate since they’ll help you make the most out of your investment. Be sure to consider other factors like:
- Experience with real estate accounting errors and compliance
- Familiarity with property management tools like Yardi and AppFolio
- A good understanding of landlord-specific tax rules
You should ensure the CPA you choose can improve property profitability. Ask them to give you the contact details of several landlords they have worked with before, and reach out to them for more information.
If you aren’t sure where to get the best accounting pros, you can contact Balanced Asset Solutions. They have a great team of CPAs who are also flexible.
The Effects of Poor Property Management Accounting
If you mishandle your property’s accounting, you are limiting your growth and risking the potential wealth you’d gain in decades. Here are some things you may be overlooking:
- Compounding errors: Small mistakes may end up causing irreversible financial losses
- Lost opportunities: You won’t know how to expand or upgrade strategically
- Legal trouble: You may end up paying fines and dealing with lawsuits if you aren’t compliant
- Weakened property value: Messy Financial statements can cause you to sell at a loss
Poor accounting will mess up the foundation of your portfolio, and that may take years to fix. You won’t see the damage right away, and when you do, your finances may already be unstable.
Wealth Protection Through Better Accounting
You can improve your real estate wealth by tracking where all your money goes. Once you have detailed information, it becomes easier to see properties that are costing you a lot of money and the ones bringing in more.
You’ll be smart about which real estate markets to invest in if you look at the patterns of your current properties. Use these tips to protect your wealth:
- Automate rent collection: To have better cash flow and avoid losing income
- Track expenses in real-time: Know how you spend every dollar
- Hire experts to manage your property: They know the industry inside and out
If you use these tips, you’ll be able to avoid property investment mistakes that you may regret later. Efficient accounting gives you peace of mind, too.
Frequently Asked Questions
Can QuickBooks Do Property Management?
Partially. You can use it, but it’s not always the best tool because it’s limited.
QuickBooks is good if you just need general bookkeeping. It wasn’t designed for property management, so you’ll have to do some things manually. These are:
- Creating rent schedules
- Inputting tenant details
- Tracking leases
You’re likely to make mistakes if you do these things manually, so it’s always better to get a tool made for property management.
What Is the Accounting Cycle of a Property?
It’s the period in which you track and record all the financial transactions regarding your property. The cycle can be monthly, quarterly, or annual. You’ll start by identifying and analyzing transactions before recording them on a ledger.
You then move to:
- Creating a trial balance
- Developing a worksheet
- Adjusting the entries
- Preparing the financial statements
- Closing your book for reporting
As a landlord, you should have an accounting cycle instead of waiting until tax season to check how your investments are doing.
What Is the Biggest Responsibility of a Property Manager?
The biggest duty of a property manager is to protect the value of your property and ensure you still make the maximum profit. They keep the tenants happy by solving any disputes and ensuring the houses or spaces they live in are in great condition.
If something’s damaged, a property manager must get it fixed quickly without causing a lot of interruptions. It’s always good to find a property manager who will focus on tenant care and be keen about accounting because both are important for long-term wealth.
Don’t Ruin Your Wealth With Poor Property Accounting
You’re risking your wealth if you don’t have accurate data on how each property you own makes money and where each dollar goes. Poor property management accounting will ruin your peace of mind, and it might also land you in trouble with tax authorities.
Professional support from CPAs who have a good reputation is crucial. Ensure accounting is less stressful and make better use of your money by having the pros on your side. Thoughtful accounting with the best tools is what you need to guard your profits.
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