Accounting for rental arbitrage isn't too different from that of a traditional rental property. However, since you do not own the property, the two major differences in this setup are:
You will have a lease payment instead of a mortgage payment.
You can not claim a depreciation expense on the property since you do not own it. Any assets you put inside the property (furniture, etc.) will still be depreciated.
Fortunately, your lease payments are tax deductible as a business expense. To categorize lease payments, consider adding a top-level account to your Chart of Accounts to attribute these payments to each month.
Setting Up a Rent Expense Account
When you make monthly rent payments to the property owner or landlord, categorize these transactions under the "Rent Expense" account. Do not treat these payments as a loan or mortgage.
To update your chart of accounts, open the right-side menu (3 horizontal lines next to your name in the upper right corner) and select the Chart of Accounts page. Click +Add Account in the upper right corner and follow the prompts from there.
In REI Hub, you will still complete your bookkeeping on a property-by-property basis and track all your revenues and expenses for the specific property. At the end of the year, you can give that information to your tax preparer, and they can make any adjustments to the information as needed.
Categorizing Payments by Property
You do not need to create a separate expense account for each rental unit. Instead, use the single "Rent Expense" account for all properties. When recording a rent payment, assign the transaction to the specific property. This allows you to track costs per property without the complexity of managing multiple accounts.
Best Practices for Tracking Costs
Consistency: Always categorize rent payments under the "Rent Expense" account to maintain uniformity in your records.
Property Assignment: Ensure each transaction is assigned to the correct property to facilitate accurate cost tracking.
Review Regularly: Periodically review your expense account to ensure all payments are recorded correctly and assigned to the appropriate properties.
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