Creating an Effective Chart of Accounts for Your Real Estate Business

Although block numbering is not necessary, we find it most useful. We recommend setting your chart of accounts up in groups of 1000 so you have flexibility and room for growth. In this sample, Legal Fees should be a part of Professional Fees as a sub-category. Edit the account Legal Fees and check the box for sub-account and select Professional Fees and then select Save and Close. Complete the same actions for Accounting Fees and Consulting Fees or any other accounts you prefer to be sub-accounts. It is a bit of a slow process to delete all these accounts, but it is real estate bookkeeping best practice to eliminate all the duplicates prior to importing the file.

Numbering in your Chart of Accounts

• That simply refers to the practice of “blocking” out or reserving large sequences of numbers for future use in accounting.
• One of the most important accounting practices in any business is setting up and keeping a property management chart of accounts.
• The rental property balance sheet from Stessa can sync with an investor’s mortgage account, allowing the outstanding mortgage balance on a rental property to be updated in real time.
• Each account type is further broken down into individual line items specific to the real estate industry.
• I’m new to Manager and still getting my bearings, but so far I’m a big fan.
• It also highlights potential cash flow issues, allowing for proactive management.

One mistake can snowball into tax issues, lost income, or tenant disputes. Whether you manage five units or fifty, avoiding errors in property management accounting is key to long-term success. However, using a single COA and set of books for an entire portfolio is not recommended. You’ll need separate accounting records for each entity, but you can use your original chart of accounts to simplify setting them up. And if your LLC contains multiple properties or units, you can use classes or tags in accounting software to distinguish transactions for properties or units. Landlord Studio is an easy to use property management and accounting software designed for landlords.

The Essential Chart of Accounts for Rental Property FAQs

Doing it this way not only keeps your chart of accounts from becoming a jumbled mess but also helps make identifying accounts easier. Our template below uses that form as a basis to make it as easy as possible to craft your chart of accounts. Your chart of accounts isn’t just important for filing away financial information, though. Many property managers try to handle books on their own while managing tenants, repairs, and listings. Sometimes tenants pay part of the rent or make staggered payments.

Setting up Fixed-Assets

The larger the business, the more likely the chart of accounts will use a numbering system. The chart of accounts is important because it organizes your financial transactions in an easily accessible format, enabling you to find and review line items quickly. Now it’s time to create accounts for each type of income you expect to earn from the rental. Use property codes or subaccounts (e.g., “5100.1 Repairs – Property A” and “5100.2 Repairs – Property B”) to track performance individually while maintaining consolidated reporting. Getting your COA just right with an expert will not only refine how you manage money but also set you up for smart tax plans.

If you have lots of property management costs, break it down further with sub-accounts for more detailed tracking (Oak Business Consultant). A well-structured chart of accounts provides the data you need to assess profitability for each property, portfolio, or business segment. You can analyze income versus expenses by property, giving you a foundation to make informed acquisition, improvement, or disposition decisions. For detailed setup guides and best practice tips, visit this fully illustrated real estate chart of accounts setup guide for property management companies. Accurate asset entries connect directly to your balance sheet and help you understand your business’s financial standing at any point.

A good balance sheet for a rental property makes it easier to keep track of tenant security deposits and annual depreciation expenses. In the Setting up a Chart of Accounts for your Real Estate Management Company blog, we talked high level about setting up a Chart of Accounts for a real estate company. This time we are taking it one step further and we are walking you through the process, step by step for QuickBooks desktop. You can download the free sample IIF file at the bottom of the blog, or an Excel Sample company. A chart of accounts is a must-have tool for any successful property management business. In the days before computers, each transaction had its own page in a ledger book, recording income, expenses, assets, liabilities, and equity.

• Regular reviews and updates ensure that the chart remains relevant, capturing all financial transactions accurately.
• But if you bulk all expenses together, you will never know which unit is profitable and which one is a drain.
• If you use property management in QuickBooks Online, enable class tracking and name each property as a class.
• When you use bookkeeping software that’s specific to rental property, like TurboTenant Accounting, the chart of accounts is preconfigured for real estate.

How to Set Up a Chart of Accounts for Your Property Management Portfolio

• Handling rental income, maintenance bills, deposits, and vendor payments is not simple.
• As a note, you will want to keep your expenses in the miscellaneous area to a minimum.
• Additionally, the use of sub-accounts makes it far easier to make mistakes when posting entries.
• A good balance sheet for a rental property makes it easier to keep track of tenant security deposits and annual depreciation expenses.
• A chart of accounts (COA) serves as the backbone of every financial management system.
• Knowing the amount of accumulated depreciation also gives an investor a better understanding of the potential tax liability when the rental property is sold.
• Here is an example of how you could use a 5 digit numbering schema.

Think of the COA as an organizational tool that groups your rental’s transactions by category. Because it groups similar transactions, you gain a clearer view of your company’s financial health. Download a free rental property chart of accounts template and streamline your bookkeeping with IRS-aligned categories for landlords. Keeping your chart of accounts tidy and useful keeps you from tripping over tax compliance and eases collection hassles.