Tools of the Trade – Accounting / Bookkeeping
This article is Part 5 in a multi-part series revolving around the Tools of the Trade that any landlord needs to be aware of and probably use. In this series, I will cover the following topics and probably throw in a few others along the way:
Accounting can be a daunting task, but a necessary evil that you WILL need to learn at some point during this journey. You will need to find a system that works for you, that you can maintain throughout the years and that will grow with you. Whether you have 1 property or 50, accounting practices are the same.
You need a system that is easily repeatable (you need to do this function year after year) and is capable of providing as much insight into the financial stability of your business as possible. If you are simply tracking your expenses on a piece of paper in your desk drawer, do you really know how much profit you are making after paying any Home Owners Association dues, Home Owners Insurance, landscaping services, etc? No, not unless you sit down with your trusty calculator, add up all of the expenses and income only to find out that you really need to look into a new landscaping service or find a way to completely cut out this “perk” since you aren’t cashflowing like you through your were.
Ditch the pen and paper, your accountant will love you for it!
There are several choices available to you without having to go into a “cloud” service that requires ongoing fees. I want to keep as much cash in your pocket as possible! There is no need to have a “cloud” solution for accounting unless you need access from EVERYWHERE. As I have not used any of these solutions and have not investigated enough into them, I will not discuss any of them.
Quicken Rental Property Manager
Albiet it has been several years since I have used Quicken Rental Property Manager for my bookkeeping, it was simple to use and had most of the functionality that I needed at the time. It provides you the ability to track all of your expenses on a per-rental basis so you can actually see where your money is going, track paid and outstanding rent, plus tracking of personal expenses. As this is geared towards the sole proprietor, co-mingling of your tax data and monies isn’t an issue. However, this model doesn’t work well when you have incorporated in some way, such as a LLC or C-Corp.
After spending about two years with Quicken Rental Property Manager, I realized that the software was holding me back. Sure, I could track rents and expenses, but what about liabilities such as security deposits? Corporations require much stricter accounting practices, so the only natural thing to do was to use what my accountant does, QuickBooks Pro! QuickBooks can seem intimidating at first since this is a full-fledged accounting package and isn’t created specifically for property management.
There are several schools of thought on how to “properly” configure QuickBooks for use by a landlord, but it will take must less time to read the e-book and QuickBooks use the company file that you can purchase from Landlord Accounting then to figure out the pros and cons of the two different ways to identify a tenant as either a “job” or a “customer”.
Unless you are a sole proprietor and own a single rental of two, purchase a copy of QuickBooks Pro and a copy of LandLord Accounting! Now I am not sure if the Landlord Accounting e-Book has finally been updated to directly match a newer version of QuickBooks or not, but even if the pictures don’t directly match up, you should be able to figure out what is expected from the text description.Questions? Comments? Contact DIY Property Manager!