Rental rates in Portland, OR, are up about 40% from 2021. This increase in rental rates could mean an increased income for rental property owners in Portland, OR. However, you won't know if you have an increased ROI without proper rental property accounting practices.
These tips will help you improve your accounting records if you own rental property.
Have a Separate Bank Account
Do not mix your rental property accounting with your personal finances. Doing this opens up your personal assets to risk. It also makes managing your personal and rental finances more difficult.
Instead, open a separate bank account for each of your rental properties or your entire rental investment portfolio. It's also wise to create a separate entity to own the property. This creates a layer of separation between you and the property, providing liability protection.
Use Accounting Software
While you could do your accounting by hand, this is not the most efficient method of managing your rental accounting. Instead, use accounting software and reporting tools. This automizes the process and decreases the risk of inaccuracies.
If you work with a property manager, they can provide you with regular reporting. They can also take over scheduling automated messages to tenants. These could include rent reminders or processing automatic payments.
Record Rental Income and Expenses
Keeping accurate records of income and expenses is crucial. You will need this information for tax season and year-over-year property management.
Rental income is more than just the base rent that you collect each month. It can also include late fees, laundry room revenue, utility payments, or any other fee charges.
You do not need to claim security deposits because you will eventually return them to the tenant. However, if you keep the deposit to make tenant-caused repairs, you will need to claim it as income.
You should record every dollar you spend on the rental property for expenses. This could include repair, maintenance, and improvement costs. It could also include registration fees like those rental property owners within Portland city limits pay.
Make Use of Calculators
Several rental property calculators make it easier to make an informed decision about managing a rental property. These calculators can help determine if a rental property is profitable.
- Return on Investment (ROI)
- Net Operating Income (NOI)
- Capitalization Rate (Cap Rate)
- Debt Service Coverage Ratio (DSCR)
- Gross Rent Multiplier (GRM)
Plan for Taxes
Like other types of income, you should expect to pay taxes on your rental income. Preparing for tax season by keeping accurate records will make tax season easier and less stressful.
Speaking with a tax accountant can help you understand your rental tax liability and potential deductions.
Improve Your Rental Property Accounting
A rental property accounting process is crucial for managing your investment. Start by setting up accounting software and a separate bank account. Then track all income and expenses as you plan for tax season.
Talk with one of our experienced property managers for accounting guidance for your rental property.