Is your goal to produce passive income from a new rental property in Westminster this summer? Smart thinking.

Research shows the average property investor earns $70,000 to $124,000 a year.

But if you don't keep accurate records of your expenses and rental income, it can cause a lot of trouble. Let's explore the importance of proper rental property accounting.

Undergoing Audits

Your state might require you to complete routine audits or submit monthly accountability reports and check-ins. Even if your state doesn't require this, the Internal Revenue Service (IRS) may audit your rental home's financial records. This is why investment property accounting is critical.

Excellent bookkeeping will help alleviate anxiety during an audit. It'll make your audits easier and faster, saving time and money.

Proper accounting may also reduce your legal and financial risks. You'll be less likely to receive fines from the IRS. Accurate financial statements will also protect your reputation and help you prepare for tax reporting each year.

Hire a property management company that offers accounting services if you don't feel comfortable managing your books yourself.

Property Sales

Rental property accounting will help if you plan to sell your rental home portfolio in the future.

Potential buyers will want to see your financial statements. This will help them gauge your portfolio's future potential and current performance before they buy. Incorrect statements might deter these buyers.

If your statements indicate that a buyer can generate a profit from your portfolio, they'll be more willing to do business with you.

Tracking Cash Flow

Managing your property's accounts may help you maximize how much money you earn.

Keep a detailed record of your expenditures and income to pinpoint areas where you could save money or use your current services better. Accurate records will help you stay on top of your financial situation and make changes that will lead to more income.

A cash flow issue can easily happen if you don't accurately account for expenses like a mortgage or property taxes. Good records will help you make on-time payments. This will keep you from losing your property.

Portfolio Performance

Rental property accounting might make evaluating your portfolio's performance easier.

Your financial statements will show you which properties in your portfolio are underperforming. You may then sell these assets to strengthen your earnings.

You might also learn which properties have generated the most profit. Investing in more of these types of assets may boost your bottom line long-term.