Rental Property Accounting: What to Do Before You Buy Your First Deal

Nelisa Lee
May 1
3 min read

Buying your first rental property is exciting—running numbers, touring houses, picturing your first cash-flowing deal. But here’s the truth most new investors miss: your accounting system is just as important as your deal analysis.

If you wait until tax time—or until you have a few properties under your belt—you’ll be stuck playing catch-up with messy books, missing receipts, and deductions you forgot even existed. Let’s avoid that.

Here’s what you need to do before you close on your first property, so you’re set up for smooth growth from day one.

1. Pick Your Accounting Method

Before anything else, decide: will you use cash basis or accrual basis accounting?

Cash basis means you record income when it hits your account and expenses when you pay them. Simple and common for small landlords.
Accrual basis means you recognize income and expenses when they’re earned or incurred—even if money hasn’t changed hands yet.

Most beginner investors stick with cash basis for its simplicity. But the key is to pick one and stay consistent. It affects how you track rent, expenses, and report to the IRS.

2. Open a Business Bank Account (Yes, Before You Close)

The biggest mistake I see? Mixing rental income and expenses with personal money. It makes bookkeeping a nightmare and muddies your records if you’re ever audited.

Even if your property is in your personal name, open a dedicated checking account for the rental. If you're using an LLC, this is even more important to maintain your legal separation.

This account will handle:

Rent deposits
Mortgage payments
Repairs, insurance, and all other property-related expenses

3. Decide How You’ll Track Everything

You don’t need fancy software, but you do need a plan.

Options:

A spreadsheet (if you’re just starting and love Excel)
Stessa (a free, landlord-friendly tool that automates a lot)
QuickBooks Online (especially if you’re building a rental business with multiple entities)

4. Build a Rental Property-Specific Chart of Accounts

Your chart of accounts is the backbone of your bookkeeping. It’s the list of categories your income and expenses fall under.

Real estate investing has unique needs—like mortgage interest, depreciation, repairs vs. capital improvements, and property management fees. A generic bookkeeping setup won’t cut it.

🌱 Inside Seeds Courses, I walk you through exactly how to build this out—without overthinking it.

5. Understand the Big Tax Buckets

Even if you’re not filing taxes yet, knowing what matters come tax season helps you track things properly from the beginning.

Pay attention to:

Ordinary expenses (repairs, insurance, utilities)
Capital improvements (roof, HVAC—things you’ll depreciate)
Mileage (yes, driving to your property counts)
Home office deductions (if you manage your rentals from home)

Your future CPA will thank you.

6. Create a Digital Filing System for Receipts & Docs

Don’t let receipts pile up in the glove box or a random kitchen drawer. Start a simple system now:

A folder in Google Drive or Dropbox
A shared drive labeled by property
A physical binder if that’s more your style

Save everything:

Purchase documents
Loan docs
Leases
Receipts
Invoices
Before-and-after photos (yes, those count too)

7. Know When to Ask for Help

If you’re overwhelmed already, that’s normal. Most investors weren’t taught this stuff before diving in.

The good news? You don’t have to figure it all out on your own.

I created Seeds Courses to walk real estate investors through setting up simple, scalable accounting systems—without the jargon. Whether you’re starting fresh or cleaning up a mess, I’ve got a path for you.