Rental properties are one of the biggest sources of income for landlords or people who actively invest in real estate and wish to generate passive, recurring revenue. Over 46 million U.S. households rented their homes (2021,) which is more than one-third of the total households. Furthermore, homeowners were recorded with a mean household income of $105,500, with 11% of the lot that earned over $200,000.
California comes under the top ten highest housing costs states, with an average cost of living around $47,000. However, a few financial requirements exist for the properties in California that investors/landlords have to showcase. It helps identify the authenticity of the income received from rent. If you’re looking to rent out one or multiple properties you own in California, you must be aware of the financial accounting requirements you might have to take up and present. Here’s a look at a checklist that will keep you updated with everything you will need.
Financial Accounting Requirements for Rental Properties
- Gross rental income: This is a summary of additional rental revenues, including the standard rent charged by the landlord. It involves:
- Monthly rental income
- Other income sources can be classified as the following:
- Pet rent
- Appliance rent
- Laundry usage
- Storage
- Parking
- Late fees
- Application fees
- Operating Expenses
These include the expenses incurred by the landlord to promote, maintain, and keep the rental property established. Operating expenses may consist of the following expenditures:
- Monthly operating expenses
- Advertising
- Cleaning
- Electric
- Gas
- HOA dues
- Insurance
- Landscaping & snow removal
- Leasing commissions
- Legal & professional fees
- Licenses
- Mortgage interest
- Net Operating Income
The net income can be derived from the formula: ‘Income – Expenses,’ which will give a person the net amount they have earned from rental income in a financial year. Tax authorities or other institutions consider the actual figure to deem the authenticity of these earnings.
Did you know?
Landlords, on average, earn about $97,000 a year.
Income Statement: How to Read it & What it Means?
Depending on the property rent and the different accounting requirements, you may need a few statements that showcase your rental income details. These will come in handy for ensuring that all amounts are recorded appropriately and in line with the state’s financial regulations. To get a better understanding of the state’s regulations, contact your trusted financial advisor or a known Los Angeles property management company who knows the rules and how to comply with them.
- Monthly Income Statement
It is a monthly record of your income and expenses from different rental properties. You can use these statements to study any unwanted costs and patterns from different months and take the information to make further changes. It is a detailed statement that can help you analyze your overheads.
- Year-to-Date
It is a record of your yearly income and expenses that have taken place within the specific tax year till the day the report is presented. It is a helpful resource that helps you identify your total taxable income and the market performance of your rental properties.
- Year-End
The report shows you how much you’ve earned from your rental properties at the year’s end and the expenses you have incurred. The information is valuable to establish performance indicators for your rental properties.
Did you know?
About 10.6 million Americans earn rental income from over 17.7 million rental properties.
Why Are These Financials Needed?
Financial reports are essential for determining taxes you may have to pay at the end of every financial year. Financial statements also help you choose the total amount you have earned from your rental properties and identify patterns within growth and loss. Such information is helpful for landlords to make changes and property improvements that will boost consistent tenant stay and improve their earnings. Apart from financials, a mountain view property management company can also ensure that the day-to-day operations at rental properties are handled efficiently and renters are well-placed when it comes to leasing, managing, or maintaining their properties for their specific needs.
Financial reports can also help landlords adjust rent prices that align with different restrictions while attracting new tenants. Currently, the average rent in California for a one-bedroom apartment is $1,658, as noted in October 2022. With the help of different accounting reports, landlords can establish the best rental price that will be feasible to maintain a consistent influx of tenants in the long run.
When renting out one or multiple properties, there will be an increase in the income you earn, along with the expenses you incur. Determining the actual amount will require a thorough study of monthly, quarterly, or half-yearly views to identify growth or loss patterns. Hence, all landlords must have a rental property accounting checklist to streamline their financial workflow. Keeping separate records for each property, organizing timelines, etc., will allow landlords to create reliable and efficient accounting statements.
