Managing or owning vacation rentals can be a lucrative business with many complexities involved in accounting for managing vacation rental properties. These complexities are unique and dependent upon on the quantity of your inventory, where you manage them, and how often you have guests.
To help you untangle these complexities that surround vacation rental accounting, you’ll find a list of five basic tips that will help you ensure an uncomplicated and efficient accounting process.
It’s mandatory that you know local restrictions, permits, and regulations that are necessary for owning or managing a management company in every city that you have a rental property. A common regulation that you might encounter is trust accounting.
Trust accounting dictates when you can and can’t recognize your income. There are far too many aspects of trust accounting to get into for this post, so we’ll only say that it’s recommended that you call your city’s office to figure out the requirements. If you ask directly what regulations you have to follow in that area, you’ll be able to avoid any confusion or future financial headaches.
Manage Your Taxes
Taxes and death, those are the only certainties in life. Every city, state, and country have a set of taxes and tax schedules that you have to follow, plus the IRS doesn’t play around. For instance, counties in Utah charge vacationers who stay at any hotel anywhere from 9 – 11.85 percent, this is what’s called a ‘transient room tax.’ On top of this tax, vacation rentals are charged an additional 4.25 percent TRT tax.
If you don’t collect this extra 4.25 percent per booking, it can adversely affect your profit margins. Taxes are also subject to a charge per jurisdiction. You’ll want to make sure that you are closely monitoring what tax laws you are subjected to for each city that you have a vacation rental property.
Before you start managing a property with for someone, you must know how income and expenses will be shared. The success of the rental property relies on this delineation. To keep high property management margins, you might need to adjust your pricing strategy because it’s dependent on how the income is split between the property owner and you.
It’s very important that you know your contract inside and out. You’ll want to go through and make sure that you understand all of the terms in all of your contracts, make sure that they’re clear on which costs are going to be shared between you and the property owner, and which ones will not be. By going through your contracts with a fine-toothed comb, you ensure that nobody ends up being stuck with low margins or unexpected costs.
Keep Property Ledgers
If you keep property ledgers, it makes it so that you’re able to know what revenue was earned and what expenses were incurred at each of your properties. This way, you know what is owed to each owner, for each month, and depending on the terms of your contract. Each property has it’s own owner contract, owner, expenses, and income.
One property might need to have maintenance done on the air conditioner, one might need to have a chair reupholstered, and one might need to be repainted. When you are responsible for multiple properties, it can become quickly become confusing when it comes to knowing which property corresponds with each maintenance order and thus makes it difficult to know how much you need to pay to the owner. It’s important that you keep track of all income and expenses on a property level.
Monitor Your Process
When just starting, your process for accounting should hopefully be relatively simple. However, if you start by managing multiple properties, accounting for each one manually can start to be a nightmare. As you start to take on more inventory, it’s crucial that you take note of how long accounting took previously and then compared it with your current progress as you increase your inventory.
Manually managing property is possible, but the number of responsibilities will increase as you start to manage more properties – the amount of work that you’ll have to do will increase too! Instead of drowning in accounting work, think about incorporating some automation to help you deal with extra tasks. This continual evaluation and controlled evolution will help you organize everything, and it will keep you agile enough to adopt new tools that are necessary for your business’ success.
Keep in Mind That This is a Business
Vacation property management is a business that is centered around people, and it revolves around excitement, happiness, and family memories. However, you have to remember that at the end of the day, you’re still running a business and it should be run like one.
Managing vacation properties successfully means that you must find the balance between making the most money and giving guests the vacation of their dreams at the same time. Running a vacation rental property like a small business means that you’ll have to:
- Evaluate any potential risks
- Anticipate guest’s needs even before they realize them
- Invest in security
- Stay on top of market trends
- Respond quickly to any reviews
Charge fines and fees when necessary and fair, and don’t make any financial decisions based on your personal budget. You’ll want to stay on top of your competitors’ prices so you can price your property accordingly. Remember that just because you wouldn’t pay $200 a night for a vacation rental home doesn’t mean that your rate is too high.
Run your vacation rental properties like a business, because it is one. Keeping track of your income and expenses will go a long way when it comes to doing the accounting work for your business – and keeping track of who pays what when you’re in a partnership – you’ll be able to manage your vacation rental property successfully. Look back at how long it took you to do your accounting work previously, and if you need to add some automation, do it!