Real Estate Accounting 101: Everything Landlords Must Know

Real estate accounting is an essential part of running a rental property business, no matter the size of your portfolio. Whether you manage one rental unit or dozens, your account books are the foundation of your rental operations.

After all, accounting for real estate isn’t just about tracking income and expenses—doing so also includes compliance and tax prep. So, if you’re new to the rental market or want to invest in real estate, this is the place to start.

In this article, we’re discussing what real estate accounting is, why it’s essential, principles of rental property accounting, and ways to streamline your accounting process.

What is real estate accounting?

At its core, accounting for real estate relates to the revenue, expenses, taxes, and compliance of your rental property business. It includes monthly and annual financial tasks you must execute to keep your operation running smoothly.

Rental property accounting covers everything from recording rent payments and reconciling accounts to reviewing financial reports and preparing your Schedule E return.

Although many investors use the terms “accounting” and “bookkeeping” interchangeably, they are two separate functions that work together.

Bookkeeping refers to basic financial tasks, such as managing invoices, posting payments, recording data, and preparing financial statements.

Accounting goes beyond those fundamental tasks, including financial forecasting and advice, audits, and tax preparation.

Why is real estate accounting important?

Accounting helps you make informed decisions about your rental property business, future projects, and purchases. Without complete, accurate account books, your rental property business won’t be able to scale or maximize its potential.

Having solid accounting practices in place for your real estate investments helps you meet these goals:

• Check accounts and reports for potential issues
• Create a strong foundation for tax preparation
• Maintain compliance with regulatory standards
• Manage cash flow
• Monitor the health of your properties
• Track your financial performance from year to year

Are you looking for investors or partners to grow your rental property business? Lenders require comprehensive financial records that show growth, profitability, and strong financial performance.

Clear, precise bookkeeping can show expense management skills and professionalism, making your business a compelling option for investors.

Principles of Real Estate Accounting

Accounting’s core principles and tasks are the same, no matter the size of your portfolio. Use this quick-start guide to build or refresh the accounting process for your rental properties.

Separate Your Accounts

Separating your personal and business accounts is crucial, but doing so is just the starting point.

Do you have commingled accounts for distinct business entities? Have you combined bank accounts for operating funds and security deposits?

Each legal entity for your properties should have its own set of accounts: operations, savings, and security deposits.

Combining personal and business bank accounts makes it easy to overlook transactions, so your books may not be complete. Sorting through each transaction, applying classes, or reallocating costs with journal entries takes time and provides more opportunities for errors. By separating your accounts, you’ll save time and improve your books’ accuracy.

Did you know that, in some areas, landlords must track interest related to security deposits and return it to tenants? Check with your lawyer and CPA about the requirements in your state and ways to divide any commingled accounts.

Start with Double-Entry Accounting

Double-entry accounting is the standard for bookkeeping in every industry. In this accounting system, each transaction has two parts, ensuring that the source and destination of the funds are recorded and balanced. This way removes the need for duplicate transactions—and error-prone spreadsheets.

Using double-entry accounting for your rental property’s books means you can accurately track transactions and balances for the five kinds of accounts in your chart of accounts: assets, liabilities, equities, revenue, and expenses.

And this comprehensive system means you can rely on crucial financial reports, like balance sheets and cash flow statements.

Record All Income and Expenditures

Your books’ accuracy matters, which means your books need to be complete. Skipping a transaction means unbalanced accounts, incomplete reports, and missed deductions. You must record every transaction that goes through your accounts.

The IRS requires taxpayers to report all rental income, even if they operate at a loss. Rental income includes more than monthly rent; underreporting income is one of the most common errors in real estate accounting.

Refer to our article on reporting rental income for more information.

Expenditures aren’t limited to property-related costs either. Professional development, dues, travel, marketing—any outlay related to your business gets recorded. Need a full breakdown of the Schedule E categories for your deductible costs?

Check out our complete discussion here.

Perform Monthly Reviews and Reconciliations

How do you make sure your records are complete and accurate? By reconciling and reviewing your books each month.

Reconciling your accounts means you compare the transactions recorded in your books with the activity in your bank account, ensuring that the balances are correct. If there’s a discrepancy between your accounts, you’ll catch it during your monthly review.

Reviewing financial and performance reports is another key step for your real estate accounting process. Regular reviews of your profit and loss, cash flow, and net operating report allow you to evaluate the health of your business—and your rental units.

Look for trends and variances in your reports and account activities to spot potential issues or opportunities within the business.

Build a Support Team

Even the most experienced real estate investor will have questions about accounting for real estate. Capital gains, 1031 exchanges, and taxes have many variables, and you never know when questions or an emergency will occur.

That’s why having a team of advisors in place is crucial—before a crisis. Find professionals specializing in rental property in your niche, whether small-scale residential units or commercial developments.

• Banker
• Bookkeeper
• Certified public accountant
• Contractor
• Lawyer
• Property manager
• Realtor

Once you have your team in place, check in with your real estate tax accountant and legal advisors regularly. Be proactive and meet with your tax preparer or CPA in the third quarter to review your books. That gives you time to adjust your spending or strategies before the end of the year.

Organize and Back Up Your Records

Your account books consist of more than your spreadsheets and financial reports. You need supporting documentation to complement the figures on your tax returns. Records related to tenants and applicants are important, as well.

You’ll need those as proof during civil litigation or tenant disputes. Between your financial, legal, employee, procedural, and other business records, your responsibilities are a lot to keep up with. Staying organized is crucial.

Decide on a filing system early. If you’re going digital, create a logical folder structure and use a clear naming convention. Remember to password-protect your files. Back them up regularly, or use a cloud-based storage option to keep files from getting lost or corrupted.

For physical records, you’ll still need a clear organizational structure. The more complex your portfolio is, the less likely the shoebox method will work for you. Consider the amount of paperwork you’ll need to store, and consider protecting the documents from fire, water, or pest damage.

You can learn more about document retention for rental property here.

How to Streamline Your Real Estate Accounting

Accounting for real estate has many moving parts, and it’s easy for landlords to feel overwhelmed or intimidated by it. Use these top tips to simplify the bookkeeping process for your rental property:

Find the Right Software

Spreadsheets are tedious to maintain and prone to errors. Accounting software can help you record your data more efficiently and accurately. Check out our discussion on accounting software for rental properties to find the right platform for you.

Set Up Automation and Rules

Save time with your software’s bank imports, transaction-matching rules, and templates for recurring transactions, improving your accuracy and efficiency while cutting down on manual data entry.

Schedule Time to Work on Your Books

Consistency is key, and checking the books once a month isn’t enough. Set aside the same time each week to update and review your books so you can monitor your financial position and address issues before they become emergencies.

Use a Checklist

If you aren’t used to bookkeeping, missing tasks is easy. Use this sample accounting workflow to ensure critical tasks get done, keeping your books and business in good shape.

Know When to Ask for Help

If you’re short on time, struggling with your tax prep, or paying interest or late fees regularly, it’s time to outsource your accounting. Specialized real estate accounting services are an option, or freelance bookkeepers can help with day-to-day tasks. Remember, real estate accountants handle higher-level items like tax planning and preparation.

How TurboTenant Can Help

You don’t need an accounting degree or professional development course to maintain the books for your rentals. Using real estate accounting software like TurboTenant (powered by REI Hub) helps you simplify your bookkeeping processes without sacrificing accuracy.

Because we designed our platform specifically for rental property owners, TurboTenant has everything you need to set up and maintain your books.

TurboTenant’s Essential Real Estate Accounting Features

• Asset and depreciation tracking
• Automated mortgage accounting
• Bank reconciliations
• Bookkeeper or CPA access
• Double-entry accounting
• Income and expense tracking
• Matching rules and recurring transactions
• Preconfigured, customizable chart of accounts designed for real estate
• Rental-specific transaction templates
• Robust reporting at the unit, property, and portfolio levels
• Schedule E reports
• Secure linked accounts for transaction feeds

TurboTenant Goes Beyond Bookkeeping

We know that real estate accounting is about more than numbers. That’s why our platform includes built-in support resources and organizational features—at no extra cost.

• Comprehensive knowledge base: Not sure how a feature works? We’ve got you covered.
• Easy-to-use interface with visual financial dashboards: Quickly spot trends, patterns, and anomalies in your accounts.
• FAQ guide: We’ve gathered all the must-know information gathered in one guide for you.
• Free email and phone support from live, US-based reps: Got a question? We’d love to hear from you!
• Integrated lease tracking: Stay on top of key dates, tenants, and lease terms.
• Mileage logs: Don’t miss out on deductible travel expenses!
• Mobile app: Monitor and update your books, even when you’re out of the office.
• Privacy policy: We never sell your personal or financial information.
• Receipt and document storage: Keep your supporting documents safe in the cloud (and not your desk drawer).
• Resource articles: Learn about bookkeeping fundamentals, tax prep, and more.

TurboTenant’s platform (powered by REI Hub) makes accounting easier and more efficient for rental property owners, but don’t take our word for it. We’ve got hundreds of reviews from happy customers like Mateo:

“REI Hub and their entire team are fantastic. The software itself is unique and powerful—an amazing simplifying technology for all things bookkeeping as a real estate investor. The support is world class with incredible customer care to complement the amazing software. Thanks again … for your thoughtful, caring, and professional approach to rolling out this amazing product.”

Let us help you simplify your real estate accounting.

Sign up for a free TurboTenant account today!

FAQs: Real Estate Accounting