• Getting Started with Rental Property Accounting

Why You Need Accounting Software For Your Rental Property

December 16, 2024 7 min read

Why You Need Real Estate Management Accounting Software

Managing rental properties can be both rewarding and challenging, especially when it comes to keeping your finances organized. Landlords, property owners, and other real estate professionals need to track their income, expenses, tax deductions, and more—often for multiple properties at once. Relying on manual accounting can be time-consuming, prone-to-error, and overwhelming.

That’s where accounting software comes in. Designed specifically for rental property management, software offers a streamlined solution to organize your finances, minimize errors, and save valuable time.

In this article, we'll explore why investing in accounting software is essential for efficient and effective property management.

What is Real Estate Management Accounting Software?

Rental property or real estate management accounting software is a specialized tool designed to help landlords and property owners manage the financial aspects of their rental properties. It consolidates various financial processes like tracking income, expenses, tax prep, and tenant payments, into a single, user-friendly platform.

According to Investopedia, the best accounting software for real estate offers features like automated bookkeeping, customizable reporting, and tax preparation assistance. This type of software not only streamlines everyday accounting tasks, but also ensures accurate financial management, helping landlords stay compliant and organized with their real estate businesses.

Benefits of Real Estate Management Accounting Software

The benefits of accounting software for real estate investors and landlords range from automating key processes to reducing overall errors and helping you complete the appropriate IRS forms to prepare for tax season. Accounting software for real estate investors is crucial to the modern-day landlord. Let’s dive into a few of these benefits in more detail.

1. Automated Tasks

Accounting software can automate many of a landlord or property manager’s everyday bookkeeping and financial tasks. For example, software can automate:

• Documentation for rent payments

• Tagging on automatic late fees

• Detailed and easily accessible financial reports (e.g., profit/loss reports)

• And more!

2. Error Reduction

Having to manually file data entries yourself can create a high risk for errors like typos or duplicate entries. Accounting software can automatically make these entries for you by importing your data, reducing the risk of error and streamlining the documentation process. Many accounting platforms allow you to import data directly from spreadsheets or other digital platforms, minimizing the need for any manual input. These platforms often feature APIs that enable automatic synchronization of transactions from your bank accounts, credit cards, and other financial services. This ensures that your financial records are precise and up to date.

3. Tax Preparation

Accounting software also automates your tax prep. Software can generate tax forms, track your deductible expenses, and even sort them into IRS categories. Landlords must maintain accurate financial records to claim deductions correctly. Accounting software ensures compliance by organizing your data and generating tax-ready reports.

4. Cost Effectiveness

Investing in real estate management accounting software can lead to significant cost savings for landlords. By automating financial processes, this software reduces the need for expensive accountancy services and minimizes errors that could lead to lost income. With accounting software, you not only save your time, but also cut down on potential costs associated with manual mistakes.

For example, Nerd Wallet reported that CPAs in 2023 were planning to charge on average $319 for a basic, non-itemized Form 1040 and $377 for an itemized return. Adding Schedule E, which reports income and loss from rental properties, adds an additional $145. And that’s just for a one-time service.

In contrast, for small- to medium-sized landlords, a subscription to full-blown accounting software is a significantly cheaper route. Some platforms charge less than $30 a month. And that’s for the year-round benefits of real estate accounting and tax prep software. Given these costs, accounting management software can save you a significant amount compared to traditional accounting services.

Key Features of Accounting Software

There are many different options for you to choose between when it comes to real estate investment accounting software. Knowing which platform is the right fit for you depends on multiple personal factors and preferences. Below are a few of the most common accounting software features you may be looking for if you’ve decided to invest in a subscription.

User-Friendly Interface

The easier that a software is to navigate, the quicker you'll be able to manage tasks like tracking rent payments, entering expenses, and generating reports. For those without a background in accounting, an intuitive software design is vital to enable you to focus on managing your properties without the hassle of dealing with complicated software.

Tailored Reports

Accounting software should allow you to tailor your financial reporting to see the metrics you’re most interested in, whether that’s with cash flow management tools, net income, or detailed expense breakdowns. This enables more accurate insights into property performance and can help you make informed decisions.

Mobile Access

In the digital world, it’s important to have on-the-go access to information about your properties. With software that provides a mobile app, you’ll be able to access financial data, tenant information, and reports from anywhere, allowing you to manage your rental business on the go.

Scalability

As your business grows, so should your software. Scalability ensures that your software can accommodate added properties and features as needed. Whether it be adding new units or using advanced tools like lease tracking or automated marketing, scalable accounting software ensures itself as a long-term solution for your business.

Legal Compliance & Risk Management

The IRS emphasizes the importance of maintaining detailed records for rental properties to document your income and deductions. Utilizing accounting software facilitates this process, aiding in adherence to tax obligations and reducing the likelihood of audits.

How you file your taxes depends on how you own your rental property, and it’s vital that you choose the right method for your situation. For example, individuals who directly own their property report income and expenses on IRS Schedule E. On the other hand, business entity owners operating under LLCs must file different forms (like IRS form 8825) and distribute income details to their partners on Schedules K-1. Each ownership situation has distinct and specific filing requirements which impact how you must report your taxes.

Accounting software helps by automating financial record-keeping, ensuring accurate tracking of income and expenses, and by generating necessary reports. This automation minimizes the risk of non-compliance.

Choosing the Right Real Estate Accounting Software

Selecting the best accounting software for your rental business depends on a number of factors. Here are some overall key considerations to help guide your decision:

• Property Size: For smaller portfolios, basic software with essential features like rent tracking and expense categorization may be sufficient. As your portfolio grows, look for software that offers advanced features like customizable reports and scalability.

• Budget: Costs can vary, from free versions for basic use to monthly subscriptions ranging from $15 to $298.

• Required Features: Prioritize accounting features that matter most to you and your real estate business. If tax preparation is crucial, look for software with automated tax deductions and 1099 generation. If you manage multiple units, prioritize software with scalable and customizable reporting tools.

Options at a glance:

• REI Hub: Focuses on rental property accounting with detailed reporting tools.

• QuickBooks: Offers broad accounting tools with property-specific add-ons.

• AppFolio: Robust software with features for large portfolios.

• LedgRE:  Our software allows users to create properties and units, import data from spreadsheets or pull in bank transactions using Plaid API, create income and expense records, integrate with rental management software, and generate financial reports like P/L and Schedule E.

Accounting Software is a Gamechanger for Landlords

In the competitive world of real estate, staying organized is a necessity. By adopting accounting software, real estate agents and property managers like you can simplify financial management, increase accuracy, and free up more time to focus on growing your rental business. Whether it’s tax season or routine bookkeeping, having the right tools in place ensures that you’re always one step ahead. Don’t let outdated methods hold you back.