Should You Use Xero For Your Rental Property Accounting?

Contents

• Can Xero Help with Managing your Rental Property?
• What do Property Investors Like about Xero?
• How to set up Xero for Rental Property Accounting
• The Limitations of Xero for Rental Property Accounting
• Xero vs QuickBooks for Rentals
• Property Management Software vs. Xero
• Using Landlord Studio with Xero for Better Property Management

Can Xero Help with Managing your Rental Property?

An essential part of owning and managing a rental property. Keeping on top of financials and budgets allows you to better understand cash flow as well as track any tax deductibles expenses which could mean the difference between profit or loss for any fiscal year.

However, despite its importance, this is also an area that many landlords struggle with. The reason real estate investors struggle with this is simply that they don’t have adequate systems in place.

This is where property management software such as Landlord Studio, or an accounting package such as Xero or Quickbooks comes in. In this article, we explore the benefits and limitations of Xero for rental property accounting compared to a property management specific software, as well as how you can get set up on Xero today.

What Do Property Investors Like About Xero?

Xero is one of the top accounting software on the market and there’s a reason for that. They offer a comprehensive and thorough accounting package which is an accountants’ dream.

1. Connect your bank feeds so you can see and reconcile income and expenses.
2. Set up automated rent invoices to help avoid late rent payments.
3. Cloud accounting software so your data can be accessed anywhere you are.
4. Grant access to multiple people so the whole team can access and edit data.
5. Advanced reporting.
6. The dashboard gives a clear financial overview displaying overdue rent and cash flow.
7. Good customer service.

However, you aren’t an accountant, and property management software such as Landlord Studio offers all of the above features in addition to property management specific features such as tenant screening, contact books, and reminders.

How To Set Up Xero For Rental Property Accounting

Setting up Xero to properly track your income and expenses can be a bit of a challenge as the software itself comes with a steep learning curve when you first begin. This being said, once you’re set up and used to the software it will quickly make your accounting more efficient.

Xero offers comprehensive support with many helpful articles written up by their knowledgeable team to help you get set up. Below we outline a quick step by step guide.

To set up Xero for tracking your rental property income and expenses follow these steps:

1. First, you need to create your account and log in.
2. In the Accounting menu, select Advanced.
3. Click Tracking categories.
4. Enter the desired name of your tracking category, for example, Rentals or Properties. There is also an option to enter each property name under this category.
5. Once that is done hit Save.
6. Now you can reconcile transactions and assign that income to the relevant property. You can’t however, split properties into their sub-units which is an important feature for users with Multi-Units.
7. There are several easy ways to record property-related expenses. One, if you use Xero Bills you can create a new bill for these expenses, and while reconciling you can match that bill against the bank payment. Another easy way is to enter the receipt details at the moment you reconcile transactions in Xero.
8. Once income and expenses have been logged and assigned to the relevant property you can run reports as well as see important information such as cash flow on your dashboard.

Xero has a comprehensive and customizable reporting feature that allows you to adjust them to better suit your particular needs. For more information on this, you’ll want to visit the Xero support center.

The Limitations of Xero for Rental Property Accounting

Fundamentally, this software is excellent for comprehensive accounting. However, it is designed for businesses rather than real estate investors. The majority of their user base are business owners and this has a fundamental impact on the design, development, and support service.

For those willing to put the work in to become proficient using the software this weakness can absolutely be overcome. However, it’s a steep learning curve and you’ll never get the additional functionality of a property management specific software

A few of Xero’s key weaknesses for rental property accounting are:

• It lacks full property management software functionality such as tenant screening, contacts, email, and SMS templates.
• The report center isn’t tailored to property investors.
• There is nowhere to upload photos and other important documents, for example, a property inspection checklist with photos or lease documents.
• The help center is aimed at regular businesses, not property investment.
• It can’t currently import contacts from other programs meaning it’s entirely manual.
• You can’t track properties on a building and Unit level which is necessary for landlords with multi-units.

Related: Should your Use Quickbooks for Rental Properties?

Xero vs QuickBooks For Rentals

When it comes to deciding which accounting software to look at you’ve probably considered the other big name in the game QuickBooks.

With regards to their accounting features both Xero and QuickBooks are fairly similar and offer pretty much everything a small business owner will need. However, their approaches are different and each has different pros and cons.

It’s important to note that both software are optimized for small to mid-sized businesses rather than for landlords, so when it comes to rental management you may still be better off looking at industry-specific software. But there’s still a lot to love about both systems.

Xero’s focus on usability and design has made it one of the fastest-growing startups ever. They’re competitive on features and come in at a slightly better price point than QuickBooks. They also have far more app integrations than QuickBooks.

QuickBooks on the other hand has been the accounting industry choice of software in the US for years now. They are ubiquitous in the industry. Ultimately though, their features stack up pretty evenly. They do differ significantly in how you use them, however, so if you already have familiarity with one platform you may not want to learn a whole new software.

You can see a complete review of Xero vs QuickBooks here if you’re interested in doing additional research. You may also want to talk with your accountant before making any final decision.

Property Management Software vs. Xero

Landlord Studio is a property management software and landlord app designed by landlords for landlords. It allows you to track your income and expenses efficiently and easily and gain a clear financial overview of your portfolio. Manage your rental property accounting on the go with our app and never miss an expense deduction again.

Many of the problems experienced by landlords can be made easier (if not solved) with improved organization and better use of available tools. This helps landlords streamline the management of their rentals.

Related: Transitioning From Spreadsheets To A Modern Property Management System

We are working hard to bring new and upgraded features to our users continuously. Some of our key features include:

Tailored Reporting

Reports designed for property investors. Generate instantly and easily share it with your accountant.

Simple Setup

Set up in under 5 minutes and start tracking income expense against property

Digitize Receipts

Use your phone to digitize receipts while our smart scan features auto-fills the expense details.

Bank Feeds

Connect your bank accounts to quickly and easily reconcile income and expenses.

Document Storage

Store important documents securely to our cloud server and access anywhere.

Tenant Management

Screen tenants, set rent reminders, and easily manage communications.

Using Landlord Studio With Xero for Better Property Management

It’s clear that using property management specific software like Landlord Studio will help you optimize the day to day management of your rentals. However, with that being said, Xero is one of the worlds leading accounting software for a reason. It’s an excellent solution for tracking your business’s income and expenses.

This is why some landlords (typically those with larger portfolios or with additional sources of income they need to track) use Xero in conjunction with Landlord Studio. Combining the two allows them to gain a complete overview of both their personal finances and their real estate accounts.

To help you use both together effectively, we’ve developed our advanced reports that you can export from the Landlord Studio app as .pdf or .csv files. You can save these to your device or send them straight to your accountant from the app to easily access key financial data.

For an even better experience, you will soon be able to use our Xero integration to avoid double-entry bookkeeping. (This feature will be launched soon!)  Simply, map your income and expense categories to your Xero chart of accounts and the software will push all your transaction data to Xero for you.

Instantly generate any of over 16 customizable reports. You can export these as .pdf or .csv formats to print or share directly with your accountant.