If the Washington State Legislature had passed HB 2114 in 2024, it would have changed how landlords raise rent for their existing tenants. Although the bill did not pass, it is a reminder of the financial challenges that landlords face. Mismanaging rental income or overlooking expenses can severely impact a landlord's bottom line.
Accurate rental property accounting is essential to optimize profitability in an unpredictable market. Avoid these mistakes with your real estate investment.
Mixing Personal and Business Finances
One of the most common mistakes rental property owners make is combining their personal and rental income. When finances combine, rental income tracking becomes impossible.
To avoid this mistake, have separate bank accounts for your personal and rental property finances. All rental income and expenses should only come from the rental bank account.
Ignoring the Law
Washington State landlord/tenant law RCW 59.18. 270 requires landlords to put all deposit money in a trust or with a licensed escrow agent. Landlords who do not handle security deposits this way are breaking the law.
You can avoid issues by learning what the law says about how to handle security deposits. When in doubt, talk with a property manager or real estate attorney. They can answer your security deposit questions.
Not Consulting the Experts
Consulting professionals can give you insight into property management accounting. Some landlords skip this step.
They assume they already know what they're doing. Without expert advice, landlords can make expensive mistakes.
Avoid this mistake by hiring a property management company to manage the finances. A reputable company will deliver monthly financial reports to keep the landlord informed.
Not Setting Money Aside
Forgetting about rental expense management will cause landlords to feel financial strain. At some point, you will have to pay several expenses.
- Property taxes
- Income taxes
- Maintenance
- Repairs
- Renovations or remodels
To avoid this mistake, landlords should set aside a percentage of the monthly rental income collected. For example, Washington's average property tax is 0.87%. Use the applicable tax rate for your property to calculate how much to set aside each month.
Poor Record-Keeping
Not having thorough and accurate records will create an accounting nightmare. You won't be able to make informed decisions because you have no accurate data to base them on. You will also find it almost impossible to pay vendors and taxes.
You can avoid record-keeping struggles by choosing accounting software for rentals. It can organize documents like contracts or receipts. A digital system that uses a cloud can allow you to manage your finances from anywhere.
Improve Your Rental Property Accounting
Careful rental property accounting is a must for any landlord aiming to maximize profitability. Avoid common pitfalls like mixing finances and mishandling security deposits.
Create a plan for taxes and maintenance. Protect your investment and ensure a smooth financial operation.
Crown Property Management offers expert accounting services to simplify your property management experience. With a deep commitment to transparency, Crown ensures that your rental finances are expertly managed.
Contact Crown Property Management today and improve the accuracy of your financial records.
