Property management is no small task. Even if you only have one rental property, managing it can be a lot to handle — you have to arrange for repairs and maintenance, sometimes on an emergency basis, and you need to keep careful track of your rental property’s expenses, income, and deductions.

You may not need property management accounting software if you only have one rental property, but it’s still a good idea. The software can automatically populate your ledgers with rental payments and expenses, taking much of the legwork out of your bookkeeping.

If you have two or more rental properties, property management accounting software is a must. You need separate ledgers, bank accounts, rent rolls, and financials for each of your properties. Here’s how to get started with property management accounting.

Open a Business Checking Account for Each Property

Being a landlord is a business, so the first step in keeping complete and accurate books for your rental properties is to open a business checking account, or a business credit card, for each of your rental properties.

This keeps your business assets separate from your personal assets and helps a lot at tax time. You can go through each account’s monthly statements to populate your ledgers with your expenditures.

Choose Your Accounting Method

There are two primary accounting methods used by small businesses: cash and accrual. Under the cash accounting method, you enter transactions in your ledger as soon as the money changes hands.

That means if one of your tenants gives you, for example, $4,500 to cover three months’ rent in advance, you would write down $4,500 in your ledger on the day that you received the funds.

However, if you use the accrual method, you enter your income and expenses into your ledger as they’re scheduled to happen, regardless of whether you haven’t actually received the bank transfer yet or whether you’ve actually received three months of rent in advance.

Under the accrual method, you’d put down $1,500 in the ledger for the first month, $1,500 in the next month, and $1,500 in the third month, even though you received all $4,500 at once at the beginning of the first month.

Some states require landlords to use the accrual method of accounting, so make sure you know what your obligations are under your local laws.

Set Up Each Property with Its Own Ledger

If you’re managing multiple properties, each one should have its own ledger in your condo management software.

Each property is its own entity, and you should have your properties incorporated under a limited liability company (LLC) in order to protect your private assets from business liability. Each property should have its own general ledger, chart of accounts, and rent roll.

Do Your Monthly Accounting Cycle Each Month

Your monthly accounting cycle should start with collecting rent from your tenants. If you’re using the accrual method of accounting, enter your rent into your general ledger regardless of whether you’ve actually collected it or not.

You can use your rent roll to track which tenants have paid and which are late on their rent.

Ideally, you’ll want to encourage tenants to set up automatic payments for their rent. Your property management accounting software should be able to detect those ACH deposits in your business accounts and populate your ledgers with them automatically.

Once you have collected rents, you’ll need to process invoices. You’ll have invoices for expenses like maintenance and repairs, utilities you’re responsible for, landscaping, and so on.

You should use electronic payments to settle these invoices, but your accounting software should allow you the option to print out checks to pay those invoices that don’t accept electronic payments or those that charge a fee for electronic payments.

With your invoices paid, it’s time to reconcile your balance sheet with your bank accounts. You’re aiming for a balance in which your assets are equal to your liabilities and debts. You don’t want to be spending more money than you’re bringing in, at least not regularly.

You also need to keep track of your tax-deductible business expenses so that you have that information handy for your accountant at tax time.

Tax-deductible expenses can include maintenance and cleaning supplies, landscaping costs, repair costs, lease cancellation costs, legal fees, mortgage interest, real estate taxes, wages paid to maintenance staff and property managers, mileage, tax preparation, and accounting fees, advertising costs, insurance premiums, and more.

Review Your Financials Annually

At least once a year, you should sit down and go over your finances. Run a cash flow statement that tells you how much cash you have and where it’s going. Have your rental property appraised every two or three years, so you can decide whether it’s worth hanging onto.

Assess your capital appreciation and compare it to your rental cash flow and the amount of debt you still owe on the property.

Managing rental properties can be very stressful, but it’s easier when you have the right software tools to help you with bookkeeping. Invest in a software solution designed for managing rental properties, and spend more time enjoying your rental income and less time earning it.

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