Learn all About Rental Property Accounting

  • January 19, 2022
  • admin@ohi

We understand that a real estate investor is burdened with loads of work which includes managing one or more properties, their maintenance, finding reliable tenants, and ensuring the overall profitability of the business. With all these responsibilities real estate accounting or bookkeeping tends to take a back seat.

However, accounting for all the financial transactions is a crucial aspect of any business. Failing to keep a track of the income and expenses can prove costly and also increases your burden during the tax filing season.

But do not worry, we have a list of practical tips and techniques that will help any real estate investor to be on top of their rental property accounting:

Separate Personal and Business Accounts

The first and the most basic tip to keep in mind is to separate personal and business accounts. Rental property owners tend to pay for management of their properties through their personal accounts. Accounting for commercial rental property can be managed only when it is completely separate from other accounts.

Although this sounds easier, it mixes your personal expenditure with expenses incurred on maintenance of rental properties causing confusion. A separate account helps a property investor track income, expenditure, maintenance costs, and even vacancies.

Open a Separate Account for Each Rental Property

When owning multiple rental properties, we suggest you open a separate account for each one. This way, it is easier for the rental property accountant to manage all of them.

Keeping a separate account for each property simplifies filing taxes and aids in the calculation of profit and loss on each property. Additionally, the investor can also identify properties that are proving to be non-profitable and take measures towards the same.

Income-Expenditure Tracking

Income and expenditure tracking forms the crux of real estate accounting. A tracking system needs to be in place to track the flow of income and expenditure incurred on each property and for the business overall. Investors can use custom-made worksheets to record their expenses or can opt for rental accounting software.

Choose Between the Cash and Accrual Accounting Methods

Choosing an accounting method is an important step in setting up the expenses tracking system.

If the real estate investor prefers to log income and expenses based on when it is earned or deducted irrespective of when the cash is received or paid, then they can opt for the accrual accounting method.

Investors can alternatively opt for the cash accounting method where they log income and expenditure while receiving or paying out cash.

The choice of method is a matter of preferences. However, we advise you to stay consistent and file all transactions using a single accounting method.

Use Digital Applications

Rental income accounting does not need to be limited to pen and paper. Using digital applications and services help investors integrate real estate accounting for different properties and analyze the profitability of each of them individually as well as identify units impact on the overall profitability of the business.

Digitizing invoices and data also enable investors to access data from anywhere even while travelling. Furthermore, using advanced tools and past data investors can forecast future prospects, income, and expenditure. Digital applications also aid in decluttering the workspace and lend a helping hand in saving the planet.

Apart from these, investors can hire experienced Certified Personal Accountants (CPAs) to manage their accounts and track their income and expenses.

Types of Rental Property Income and Expenses

Rental properties are all about calculating income and expenses. A large difference between these two will result in more profit for you. So your aim as the rental property owner is to reduce the upkeep expenses while keeping the income steady. It will be even better if you can find a way to increase your income.

Before you dive into the complexities of rental properties accounting, you must know about the income and expenses that you will have to take care of.

1. Income

The major part of the income in a rental property comes from the rents paid by the tenants. As the owner, you will be receiving a monthly payment for the property. You can also get the rent in advance for a couple of months which will count as prepaid rent. The rent will also cover additional income that you might get from the tenant such as pet rent.

Apart from the monthly rent, the owner can also earn from the security deposits. Security deposits are not meant for the personal use of the owner. It can only be used to repair something on the property that has been damaged by the tenant. The repair fees will be taken from the security deposit. It will be added to the accounting as income and then as an expense when it is used for the repairs.

2. Expenses

The maintenance of the property or properties constitutes a large part of the expenses. Regular maintenance needs to be conducted on the premises to ensure the safety of the tenants and the proper functioning of all the appliances. If there are any damages then you need to pay for the repairs as well.

Some rental properties require the landlord to pay the utility bills for all the tenants. These include the electricity bill, water bills and so on. This becomes a monthly expense that you have to pay at the end of every month.

Owning properties also requires you to pay taxes. The amount of taxes depends on the size of the particular properties. For a large area, the taxes will be higher.

You also need to pay for any professional services that you hire such as an accountant.

Make Use of the Best!

Efficient real estate accounting has a plethora of advantages. Investors can use accounting to protect themselves from fraud or debt, forecast future income and expenditure, save time and money while filing taxes, and adjust their business operations to ensure maximum profitability.

Maintaining an accounting for rental properties is not just for the profits that you will be earning. It is also done so that you can organise your business operations properly.


OHI is a thirteen-year-old real estate services company working with 50+ commercial and residential real estate developers, funds and property management companies across USA. Our deep expertise in real estate accounting, financial analysis, lease administration and asset management has helped clients cut associated costs by 40-50%. We currently provide these services to a portfolio of 75000 units across clients.

We invite you to experience finance and accounting outsourcing through us.

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