6 Ways to Improve Your Rental Property Bookkeeping
Owning a rental property (or multiple properties) can be a lot of work, but it can also be a very lucrative investment. You may have a substantial upfront investment to purchase and renovate the property. You’ll also have ongoing homeownership and property management expenses to cover from month to month. However, the buy and hold investment can be profitable over the long run. You’ll get monthly cash flow from your rent and you’ll also benefit from long-term appreciation on the property’s value. You can always sell the house in the future at a higher value than you bought it.
As a real estate investor and rental property owner, you have to be very careful about your budgeting and planning. It’s important to have strong bookkeeping that enables you to be as profitable as possible for every month—and every year—you own and manage the rental property. Here are some of PropertyLark’s best rental bookkeeping tips.
1. Set Your Home Purchase Budget
First, you must have a budget set before you start searching for rental properties to buy. Your buying budget should include the purchase price of the house, along with renovation costs. Let’s say you are looking to spend up to $300,000 on a rental property. Make sure the purchase price and projected renovation costs add up to be less than that. If they total more, then that house is likely beyond your budget.
2. Set a Target Rental Income and Cap Rate
What is your target monthly or annual rental income to make your investment worthwhile? This will be important when analyzing properties to buy and projecting rent prices. Ultimately, your rent price minus your average monthly ownership and management expenses equals your profit. Run the numbers and know what it will take for this investment to be worth your time, money and effort. You’ll also want to set a target cap rate (capitalization rate) to assess both short-term and long-term investment return potential. For more information about target cap rates, click here.
3. Calculate Ongoing Ownership Costs
In order to be a successful rental property owner, you have to be profitable from month to month and year over year. Build a detailed spreadsheet to calculate your average monthly ownership costs. Include property taxes, HOA dues, mortgage loan payments, insurance, maintenance and property management expenses. This will enable you to set a proper rent price and track ongoing expenses to know when you might need to raise your rent.
4. Build Spreadsheets for Each Tenant and Unit
Whether you own just one rental unit or dozens, you want to create a spreadsheet for each unit and each tenant to track rent payments, occupancy/vacancy rates, security deposits, move-in/move-out dates, roommates, etc. Keeping detailed records will help you be a better rental property owner.
5. Track Maintenance Records
Maintenance and repairs are sometimes overlooked (or at least projected too low) by real estate investors when budgeting for rental property ownership. Maintenance costs can add up and seriously eat into your profits. Carefully record and track all maintenance and repair expenses for each property.
6. Monitor and Adjust
No rental property budget should ever be set in stone. If you own the property for 10 years, your books can and should always be evolving. Carefully track and monitor your income, expenses and profits. See what is working and what isn’t. Make adjustments to your budget and investment plan as needed. This will help you stay on top of everything and ensure that your rental property is always providing healthy profit.
Successful real estate investing is all about having a smart plan and setting realistic budgets. Use spreadsheets and proven rental property bookkeeping techniques to run your rental like the business it is.
For help with running detailed property analytics and identifying the best rental properties to buy, consider joining the PropertyLark home buying network. We give you all the tools and advantages you need to be a more successful real estate investor. To see if you qualify, please fill out the contact form and brief questionnaire on the buyers’ pages of our website.