Do I need accounting software for my rental properties?
Rental and investment property owners -just like every business- need to track their income and expenses so that they can accurately file taxes and maximize their profits. The stakes are real: inaccurate books can lead to overpaying taxes and making decisions based on flawed data.
Most small business owners use some form of accounting software to help them categorize transactions, monitor cash flows, and stay in control of their finances.
Rental property owners and real estate investors nationwide choose different strategies to help them manage their financial records. Those with very small portfolios often do it themselves with spreadsheets. Those with very large portfolios may outsource the job entirely or employ a bookkeeper on staff. Investment property owners of all sizes also turn to accounting software to help them stay in control and maximize efficiency.
This article is to help you figure out if using accounting software is the right fit for you and your rental property portfolio.
Accounting software has serious benefits
First, let’s take a look at some of the advantages that using generic small business accounting software can bring to your rental investments.
One of the core benefits accounting software of all kinds offers is the ability to link to your rental business bank account and import a transaction feed. It is a safe and secure way to drastically reduce the amount of manual data entry you need to do, saving you lots of time.
Beyond efficiency, working off an imported transaction feed also increases the accuracy of your books because you are much more likely to account for all of your transactions and expenses. If you are not claiming all expenses, you are likely overpaying taxes.
Organized, cloud-based receipt storage
Accounting software provides a framework that helps you keep your data organized, accessible, and easily communicable. In addition, almost all modern accounting software is cloud based and allows you to link and store digital copies of receipts. Not having to physically keep your receipts or use a separate system to manage them helps keep your financial management simple.
Rental property accounting software provides even more value
As you can see, general small business accounting software can be a very useful tool. Accounting software made specifically for rental properties, such as REI Hub, can be even more beneficial.
Most accounting tools available today are built with a one-size-fits-all philosophy. That makes sense for traditional small businesses like retail, but can present problems for unique industries like real estate. While most accounting softwares can be tweaked to work with rentals, it is not always seamless. Dedicated rental property accounting software is designed to optimize your experience and provide industry specific value. Benefits include:
Already set up for rentals
Rental property accounting software is ready to go for rentals and real estate out of the box. You don't need to change the chart of accounts, figure out how to track by property, or navigate endless accounting jargon. Instead, you can simply add your properties (and call them properties!), add your accounts, and get on with keeping your books.
Easy to use and optimized for your needs
Rental accounting software won't help you track inventory or manage payroll, but it will properly split your mortgage payment and print Schedule E reports. With a property centric interface and rental transaction templates, rental bookkeeping software is easier to use and understand, especially for real estate investors and rental property owners without much accounting experience.
Integrated rental organizational tools
What you risk without software
If you choose not to utilize accounting software, you are at greater risk of the following:
Spending more time with less peace of mind
Inaccurate books, which could mean paying too much tax
Without a reliable system such as using a dedicated rental business bank account linked to accounting software, you are at a greater risk of failing to include all of the expenses you incurred. That leads to over-reporting income and ultimately paying more taxes.
Making decisions based on incomplete data
So, do you need accounting software for your rental properties?
You probably need accounting software if:
If you fit in one of the following groups, odds are that accounting software would streamline your rental property financial management and make your life easier.
You are unhappy with your current bookkeeping
You intend to scale quickly
You want to spend as little time as possible on bookkeeping
You probably do NOT need accounting software if:
If the following descriptions fit, you may not need accounting software.
You pay someone else to do it
For some, professional bookkeepers are worth their fees and more for the peace of mind and time savings they provide. If your rental portfolio has reached a size and success level that you are comfortable with the expense, congratulations! That bookkeeper will now use some form of accounting software on your behalf.
You are organized and have a relatively small portfolio
You already have a defined system that you understand and is working efficiently for you
But would you be here reading this article if that was the case?
Last updated: May 2020