Should You Use Spreadsheets Or Rental Accounting Software?

As a landlord, one of the most important tasks you’re in charge of is managing the finances of your business. Income, expenses, rent collection, and data reports are all indicators of your business’ financial health and are vital to stay updated on. The two most common methods of tracking these numbers are spreadsheets and accounting software for landlords. But which is a better option for your rental business?

What are Your Options?

Though bookkeeping for your rental business can be done in a variety of ways, two of the most popular are rental accounting software and spreadsheets. Both have strengths and weaknesses that may influence which you want to use, but it’s important to understand the basics before you implement them into your business.

Spreadsheets built out in Google or Excel are widely used for rental property accounting. They allow you to organize data in a way that’s unique to you and your business and complete detailed analyses of financial data, whatever way you prefer. You can also use spreadsheet templates available for download online, then customize them to fit your needs.

Rental accounting software, on the other hand, is real estate-based and is designed for streamlining and automating financial reporting that would otherwise take extensive time and effort to complete, such as income and expense tracking or monthly rental collection.

While both serve the same function, they operate differently, and one option may work better for you than another depending on your specific rental property operation.

Manual Data Entry with Spreadsheets

Tools like Google and Excel spreadsheets can serve many functions for many different businesses, but one area that is particularly successful is real estate. This is because spreadsheets are a simple method of completing time-consuming tasks, making your job as a landlord much easier. Here are a few of the benefits of using spreadsheets for rental accounting:

• Customization — Spreadsheets are often highly customizable and can be tweaked to your specific needs so you can complete manual data entry with ease.
• Simplicity — Rental accounting spreadsheets are easy to use and have simple layouts so you can quickly visualize and understand the financial state of your business every step of your accounting journey.
• Data Visualization — Platforms like Google and Excel offer a variety of chart types, such as pie charts, bar charts, and line charts, to aid you in visualizing data in ways that make the most sense to you.
• Spreadsheet Design — In addition to basic landlord accounting spreadsheet functions for tracking income and expenses, spreadsheets can be designed with pages for financial information regarding issues such as budgets and maintenance schedules.

It’s important to keep in mind that spreadsheets do come with challenges that should be considered before being implemented into your business. Though spreadsheets are flexible to your needs and simple to use, they’re more prone to the effects of human errors in calculations. They also don’t always offer financial reports that can be valuable during tax season. Additionally, due to the limitations of spreadsheets, you must do manual calculations of potentially complex financial information.

Using Rental Accounting Software

Unlike Excel spreadsheets, accounting software for real estate is built specifically for landlords and property managers. It has more bookkeeping features built in than spreadsheets can offer, and it can instantaneously create reports of the financial state of your business, making it a popular option for many landlords. Let’s look at some of the benefits of landlord accounting software:

• Accuracy — By implementing accounting software in your rental business, your financial information is organized into one centralized space, eliminating the need for manual data entry and ensuring accuracy in transactions across your rental properties.
• Reporting features — Rental accounting software changes the game with reporting features for profit and losses, fixed asset schedules, and Schedule E generation. Real-time financial reporting updates make tax season a breeze.
• Simplifying and automating expenses — Landlord accounting software typically comes with pre-made categories for the many types of expenses you’ll encounter as a landlord, as well as simplified cash flow tracking. With this feature, you can track income and manage your expenses to better understand the financial health of your properties.
• Integration for bank accounts and property management software — Some rental accounting software offers integration with bank accounts and rental property management software, allowing your transactions to automatically sync to your books. With the addition of property management software, you can also manage maintenance, tenant communication, rent payments, and documents such as leases and rental applications.
• Digital receipts — With rental property accounting software, you can attach digital receipts for different properties or services such as repairs. With this feature, you get a full picture of the process of the services for each individual unit so you can easily and accurately track the costs.

Just like with spreadsheets, rental accounting software can come with some drawbacks. For one, this software often isn’t free. The benefits often outweigh the subscription cost, but those with tight budgets may want to consider their options. Software also offers fewer opportunities for customization and can come with a learning curve if you’re not the most tech-savvy landlord.

Which Method is Right for You?

Ultimately, it’s up to you to decide which method of rental property accounting best fits your needs as a business owner. Perhaps you like the flexibility of spreadsheets or the reporting features of rental accounting software. If you’re still contemplating which option is better for your business, we have some considerations that may point you in the right direction.

Spreadsheets work best for first-time landlords or landlords with only a few tenants to oversee. Because you’re doing more of the manual work, it’s ideal if the bookkeeping you need to do is straightforward — if you have a long list of tenants, accounting will be anything but straightforward. If you’re comfortable doing manual data entry for a small handful of tenants, then spreadsheets could work for your business.

However, even landlords with just a few tenants tend to find that rental property accounting software is a no-brainer. It simplifies and streamlines your bookkeeping process so you can breathe a sigh of relief knowing your books are up-to-date and accurate. Having a large number of tenants and rental units to keep track of financially is an almost impossible task when done manually, so using software that can integrate with your bank accounts, track your income and expenses, handle online rent collection, and create a variety of essential reports makes rental property accounting software an efficient, reliable option for your accounting needs.

Above all else, rental accounting software works for landlords of all sizes. Whether you have five units or fifty, you can find the best accounting software for landlords to fit your goals.

Conclusion

Spreadsheets and accounting software for real estate are both viable options for managing your rental business’ finances, and both come with pros and cons; however, rental accounting software is the option designed with built-in features made specifically for real estate investors like you. Landlords of all kinds with any number of tenants can benefit from the use of rental property software, so get started today with Ledgre.