Rental properties in Kansas City almost always make money. You’re earning high rents and your property value is increasing every year. But, can you see the money that you’re making? It can be easy to miss, especially if you’re frustrated with maintenance costs or worried about whether you’re earning enough every month to cover the mortgage and expenses associated with your investment.
It’s essential to keep track of your finances.
Understanding your income, expenses, taxes, and cash flow statements will give you an immediate and ongoing understanding of where you stand financially and where you want to go. The best way to maintain a clear understanding of your financial position is to prepare accurate and detailed accounting reports regularly.
If you’re working with a Kansas City property manager – good news. You’re probably receiving these reports already. We upload financial information in real time to our owner portals so that you can see exactly what’s coming in and what’s being spent. We’ll also generate year-end reports and help you get prepared for tax time.
Property managers have sophisticated property management accounting software that can be invaluable in running reports, providing accounting statements, and helping landlords make sense of their financials.
Whether you’re partnered with a management team or navigating the financial field on your own, make sure you have a system in place so you know what you’re earning and where your best potential rests.
Here’s how monthly and year-end accounting reports help you make sense of your investment property finances.
Finding Value in Monthly Accounting Reports
Monthly accounting reports are usually a real estate investor’s best tool for keeping track of a property’s general income and expenses. You won’t always get a detailed drill-down into what each item in the report represents. But, it’s an easy report to glance at to know how an asset is performing at the end of every thirty day cycle. You can see your property’s financial activities and make some decisions about whether it can be left alone or whether some actions need to be taken to increase profitability or decrease expenses.
These reports comprise a summary of an investment’s performance over a set period of time.
Most property managers will generate these monthly accounting reports after rent has been collected and all expenses for the month have been reconciled. You’ll see the amount that was ultimately deposited into your account, and when that money hit. You’ll see any deductions for services such as landscaping, pest control, or property management.
In some cases, your monthly accounting report can include a detailed analysis of all the financial transactions that took place during the period in focus. While such a report will always include rental income, expenses, and any other sources of revenue, you can also create a report that looks at how this month is performing compared to last year at the same time. These monthly accounting reports can be customized into whatever you want that will help you ensure that your property is generating income and tracking expenses. This information is critical for long-term financial stability.
What Rental Property Owners Need from Year-End Accounting Reports
Year-end accounting reports provide a comprehensive overview of the financial activities throughout the year. Similar to a monthly accounting report, you’ll find the same information in the year-end accounting report, but it will cover the activities of the entire 12 months. You might see nuances, as well, especially if you had a new tenant move in or an existing tenant move out. If there was an eviction, you’ll see that the large expense or the lack of rental income is reflected against the backdrop of the entire year.
These reports are important for various reasons, including:
- Taxes. You’ll need this year-end report to file, when you declare your income and claim your deductions.
- Identifying financial trends, which can be useful when you’re deciding whether to sell or engage in a 1031 exchange.
- Analyzing the financial health of the property and the entire investment portfolio, if you have more than one property. You can compare one investment’s performance against all the others.
Year-end accounting reports include a balance sheet, income statement, cash flow statement, and other financial statements. It’s essential to prepare and submit these reports promptly to the IRS in an effort to avoid audits as well as potential legal and financial complications.
Benefits of Creating Financial Reports
As long as you can eyeball what you’re earning and spending, why are detailed reports really so important?
There are numerous benefits. Here are just a few:
- Financial Reports Create Accuracy and Transparency
Accurate and transparent accounting reports are essential for any landlord. Monthly and year-end financial reports help you identify any discrepancies in finances, which could result in financial complications later on. This type of reporting also ensures compliance with local and federal financial regulations and helps you identify ways to improve their financial health.
- You Can Track Financial Trends
Preparing regular financial reports helps track financial trends. By analyzing financial records, you can identify opportunities to reduce expenses, increase profits, and make better financial decisions. For instance, you can identify tenant behavioral trends, such as higher rent collection and payment delays, and takes steps to address these trends, which could ultimately impact your property’s financial health.
- Making Informed Decisions
Regular accounting reports provide you with the tools that are necessary to make financial decisions, such as purchasing new properties or selling an underperforming one. These financial analyses also help identify trends in the property market and allow you to take advantage of solid real estate investment opportunities.
Monthly and year-end accounting reports are critical to your financial success. You receive the necessary financial information to make informed decisions, ensure compliance, reduce expenses, and increase revenue.
Make sure you’re preparing and utilizing accurate, detailed, and transparent accounting reports regularly to maintain financial health and understand the true value of your investment and the value of your entire portfolio.
Good accounting should be a priority. If you can’t make it one, consider working with a Kansas City property management team. We can help. Please contact us at Key Partners Property Management.
First & Last Name