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Rental Accounting

Tips to Simplify your Rental Property Accounting and Management

Property accounting, whilst not the sexiest aspect of property investing, is an essential part of managing your buy to lets. Property accounting can mean the difference between a successful and profitable investment and a failure.

In order to stay on top of your finances, you need to have the right system and tools in place and of course, you need to be familiar with all the strict rules and regulations that surround owning and managing rental property.

What are the Aspects of Property Accounting?

Tax liabilities

When you rent out a property, you will collect taxable rental income. However, you can also offset some of your tax income against allowable expenses.

As a private landlord, you will need to file a self-assessment declaring your taxable income and business expenses. It’s important to note that all landlords earning above £10,000 (before expenses) will need to adopt the new MTD system in 2024. Find out more about what this means here.

On top of your tax liabilities, you will need to pay Class 2 National Insurance on rental income if:

  • being a landlord is your main job,
  • you rent out more than one property
  • and you’re buying new properties to rent out.

If you operate your rentals as a business, you may be operating as a limited company in which there will be additional tax liabilities to consider.

Staff and payroll

It is likely that, as your property business grows, you will need to expand your team. This could involve a sales team, maintenance crew, property managers, and more.

Depending on the size of your operation you may want to outsource these jobs. If, however, your operation is larger, it may be cheaper to bring team members on board.

If this is the case, you will need to make sure you are on top of the payroll.

Paperwork

There is a lot that a landlord needs to stay on top of when it comes to managing your buy to let finances. Paperwork relating to your property financials may include:

  • Rent schedules
  • Inventories
  • Check-in and out documents
  • Floor plans
  • Profit and loss reports
  • And more…

Property management software like Landlord studio can help you stay on top of all of the important documentation relating to your investment properties. For example, run any of over 15 advanced reports, including rent roll report, rent schedules, P&L report and more.

Additionally, you can store important documents organised on our secure cloud server accessible from any device at any time.

Managing expenses

Cash flow is king. However, as your portfolio scales, it can be difficult to assess where all of the money is going.

Keeping clear records of all of your expenses in a system with accurate, detailed and easy to understand reporting will allow you to quickly gain nuanced oversight of exactly where you are spending too much money, and give you insights into how you can reduce overheads and improve cash flow.

Deposit protection

It is a legal requirement that as a landlord you keep the security deposit that you collect in a secure government approved tenancy deposit scheme. You can store the deposit in one of the following:

Legal costs

Your rentals are a business and they should be operated as one with all of the necessary legal documents. This starts with a legally binding tenancy agreement, proper landlord insurance, and ensuring that your property meets all of the specific legal safety requirements for a rental in the UK.

Find out more about safety and legal requirements for landlords in the UK here.

Know the different types of property management

There are different types of property management, each with different considerations when it comes to accounts.

Residential lets – such as student flats or family homes.

Commercial lets – such as serviced office space or industrial units.

Holiday lets – such as cottages and apartments.

For residential and commercial properties, you will have lots of legal requirements to keep on top of. But for holiday properties, you have increased admin and transactions because there is such a high turnover of people leasing your property.

Find out about the essential non-financial aspects of operating investment property here.

calculating opertaing expenses ratio (1)

Tips for better property accounting and management

Talk to your accountant

The first thing you need to do is speak with your accountant to ensure you know exactly what you need to track, and the best way to track it. Your accountant should be able to give you detailed advice on how to optimise your cash flow and maximise your allowable expenses.

Track income and expenses in real-time

It can be tempting to leave your rental accounting till the end of the month, quarter, or even tax year. However, not only does this create a tedious and behemoth task, it can easily lead to expensive accounting errors.

A better solution is to adopt a property management software like Landlord Studio. With Landlord Studio, you can use the app to digitise receipts at the point of sale, connect your bank account and reconcile transactions in real-time, and manually log income and expenses on the go.

This means no massive end of year task, and you can gain nuanced real-time oversight of your property financials.

Monthly and quarterly review

Regularly reviewing your financials is an essential part of running any business. You need to know how much money is coming, how much is going out, forecast and budget for potential expenses and more.

By conducting regular financial reviews, you will be able to spot any potential discrepancies or issues with your financials and implement fices in a timely fashion to ensure financial success.

Use the right software

Getting your rental property accounting under control can seem like a bit of a daunting task. Thankfully, there are solutions available that are designed to do the heavy lifting for you. Meaning that your “passive” rental income is actually (almost) passive.

Landlord Studio can help with everything from income and expense tracking and reporting to managing tenant communications and automating tasks and reminders.

What should you look for in online accounting software?

1. Cloud-based flexibility

Having a cloud-based tool gives you a few clear benefits. It means you’re not tied to your desk or laptop. You can track your income and expenses as they happen, and you can more easily and quickly respond to tenants.

Cloud-based online accounting means you can keep on top of your accounts at all times of day and night. With software like Landlord Studio, you can easily manage your accounts through the app or via desktop.

2. Multi-user options

Many investors have partners, accountants, financial advisors, or other members in their team. Having the ability to give team members access to your cloud-based software can help keep everyone in the loop and streamline your overall processes.

With Landlord Studio, you can give view-only access to your reports (perfect for accountants), or full admin access to partners with their own separate login.

3. Easy access for your accountant

You will want your accountant to be clued in with your financials. This will allow them to offer more tailored advice. Use the Landlord Studio accountant view to give your accountant view-only access to your financials in Landlord Studio.

Additionally, you can now integrate Landlord Studio with Xero, which will automatically sync all of your financial data to your Xero account, allowing your accountant to log in and access the advanced customisable reporting functionality that Xero offers.

4. Opportunity to store records and stay compliant

Aside from all of the important tax documentation and records you need to keep, you will also need to store important documents such as the tenancy agreement, tenant communications, EPC certificate, safety certificates and more. The best solution will allow you to securely store this in the system organised by property so that it is easily accessible at any time.

5. Advanced reporting

One of the key features of good online accounting software is reporting. With Landlord Studio you can instantly generate any of over 15 real estate-specific reports.

6. Receipt scanner

Digitise receipts at the point of sale. This means you don’t have to worry about storing hundreds of paper receipts, and you’ll never lose a supporting document again.

Final Words

Online accounting software keeps a record of every transaction and lets you run cash flow forecasts, it is easy to look back at previous accounts’ activity and to get a snapshot of the coming months.

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