We ranked the best accounting software for landlords to stay on top of your rental income.

Accounting Software for Landlords, Ranked

The financial benefits of managing a rental property for landlords are numerous. Still, you can only actualize them with careful accounting habits and tools. 

Real estate accounting needs to incorporate four key three key aspects:

These are all the costs associated with managing your rental property. Look for an accounting tool that will automatically track your expenses.

This category includes all the money you make from your rental property. 

Not all accounting tools will provide robust reporting options, but careful financial analysis is critical for a successful rental property.   

How to choose the right tool to manage your rentals

Landlords will need to consider their specific needs to determine which accounting software is best for their needs. 

Take inventory of your rental property portfolio 

Each rental property accounting software is designed for a specific type of landlord. There are less expensive options if you manage the finances for just one or two rental properties. However, suppose you are managing a large number of rental properties. In that case, you'll need to look for accounting software specifically designed for that need. 

Consider your CPA or tax preparation preferences 

If you currently or plan to work with a CPA or tax preparer, it can be helpful to seek their advice on which accounting software they prefer. Most tax and accounting professionals will be familiar with general accounting tools like Quickbooks or Quicken. If your CPA works with other landlords, they may have unique insights into specific platforms and any downsides or benefits. 

Make a list and look for specific features

Are there specific tools or features that your accounting software needs to have? It's helpful to make a list of these functions before you start your search to ensure that your chosen software has those features.

Separate chart of accounts for rent/deposits 

Multiple payment options such as ACH and credit cards

Types of accounting software for landlords 

Landlords can choose from several different types of accounting software. Standard options fall into a few distinct categories. 

If you're financially savvy or particularly good with spreadsheets, you may be able to use Google Sheets or Excel in place of traditional accounting software. Many free accounting templates can help you get started with this option. We don't recommend DIY accounting software for landlords unless you feel 100% comfortable managing and troubleshooting any issues. 

Many landlords may choose to use accounting software that hasn't been developed specifically for real estate. Accounting software like Quickbooks, Freshbooks, or Quicken can be a solid choice for landlords already familiar with these tools. 

These types of software won't have features specific to rental property, particularly for rent collection. Still, they can be suitable for landlords with solid processes and procedures. 

Free rental property accounting software exists, but they're only suitable for certain landlords. We've found that they don't always include critical features and can expose you to potential financial errors. We've included a review of one popular free software to see how it stacks up against the competition. 

One of the best ways to stay on top of your accounting (without the need for expensive software), is to partner with a good property manager. Property management provides support not only for accounting needs, but also tenant placement, screening, maintenance, and more. Working with a property manager significantly reduces the time spent completing administrative tasks and saves money in the long run.

Many modern property management companies offer an app or landlord portal that streamlines communication and tracks repair requests. It should also manage all of your rental receipts and incomings/outgoings, making your finances simple to find at tax time.

We've included information in our ranking for each software's pricing. However, it's important to note that each software has a different pricing structure and that these prices are subject to change.  

Landlords should carefully consider different pricing aspects, including free trials, potential software set-up fees, required monthly minimums, upgrade, and add-on charges.

Best 2022 Rental Property Accounting Software 

ZenLord Pro is free software that offers rent collection, accounting & bookkeeping, a work order system, tenant communication, free screenings, and lease agreements. 

Pros: Users like that the software can generate tenant applications and leases. While the platform is basic, it should address the needs of landlords with just one or a few properties. 

Cons: You may only be able to add information for one bank to your account. For some, this could cause some difficulties. 

Pricing: ZenLord Pro is one of very few free accounting software choices for landlords. They also offer two upgraded versions with additional features that run $7 and $9 per month. 

Customer review: "Overall: I solved late rent. That is the biggest concern for me. It made sure my tenants knew that we were watching payments and we would know before rent was due if they were good to clear the payment. Communication through the website/text platform is great: I like the feature where it gives you a balance update. So you know if your tenant is good for the rent. Maintenance platform is useful for scheduling repairs. The UX design needs some work, but it's something that can be changed easily. Still super easy to use…" - Nishul P.

Quickbooks - Best Accounting-only Software

We ranked the best accounting software and financial solutions for landlords to stay on top of your rental income.

Uncover the ins and outs of remotely managing an out-of-state property as a landlord.

Managing An Out-of-State Rental Property

Choosing to manage an out-of-state property as a landlord can provide unique upsides. However, managing a rental remotely from another location comes with some distinct challenges. With careful consideration and an understanding of property management solutions, landlords can be sure their out-of-state rental brings them fewer headaches and more success. 

Out of state rental property considerations 

The local real estate market will be a driving force in your decision to add a rental property to your portfolio. A vital location will be on a clear path for growth or future revitalization. 

You may also choose to evaluate other factors, including:

Local amenities like restaurants, trails, and parks 

As with any rental property, it’s critical to estimate the potential cash flow of each potential property. Accurate calculations will provide you with essential information to aid decision-making. 

Accurately calculating your potential cash flow for an out-of-state rental property requires going beyond simple calculations that take principal, interest, taxes, and hazard insurance into account. You may also need to account for mortgage insurance, repairs, maintenance, turnover, and capital expenditures. 

Do you enjoy the location and things the city or state offers? It’s helpful to consider areas that you might personally enjoy. You may be spending time there, especially when establishing your rental property. Choosing an appropriate location is also vital if you plan on using the home as a future vacation or retirement home. 

Carefully research the local laws regarding rental properties. Some states or cities may have specific provisions around tenant screening processes. You may also find guidelines around if and how you can decline tenant renewals, notices, and evictions. 

You may need to make changes to your lease agreement to ensure it’s consistent with local laws. If you’re unfamiliar with landlord-tenant laws, it may also be prudent to consult with an attorney familiar with local laws. While legal considerations may be initially tedious, careful due diligence will save you grief in the long run. 

How to make an out of state rental property easier to manage 

Set clear tenant responsibilities and expectations 

Communicate expectations with potential tenants and ensure that your lease agreement outlines any important details. For example, if your tenant is responsible for lawn care, be sure that you define and set guidelines around this responsibility. 

Your proximity to your out-of-state rental property may dictate how you manage maintenance, emergency repairs, and vacancies. What aspects of these processes need to be communicated with your tenant or included in your lease agreement?

Your out-of-state rental property will inevitably need maintenance and repairs. If and when the A/C unit goes out in the middle of August, you don’t want to be searching high and low for a local, trustworthy repair company. 

Consider doing preliminary research and compiling a list of local resources before you may need them. You can check sites like Nextdoor for reviews and recommendations. Finding a reliable handyperson for your out-of-state rental property will save you lots of time and money in the long run. 

Defined systems, processes, and automation tools will make managing an out-of-state rental property immensely easier.

If this is your first time using automation tools, consider outlining all of the processes associated with your property: 

You can choose the tools that are best suited to your specific needs. You may need to try different solutions or combine multiple tools to find the best combination for your rental property. 

Build relationships with your out of state rental property’s HOA

While you may not be the one living in your out-of-state rental property, it’s to your advantage to cultivate a relationship with the local HOA, if there is one. Failing to develop a good relationship can result in unexpected assessments, fines, and violations. 

To maintain a harmonious relationship, be sure that you are familiar with HOA guidelines and align your lease agreement with those guidelines. Always be sure to pay HOA dues promptly and address any violations in a timely and respectful manner. 

Ease the burden of managing an out-of-state rental property by using property management software, hiring a property management company, or individual property manager. 

Generally, property management services or software includes:

Choosing the right property management solution will help you find better tenants, experience fewer vacancies, and streamline your rental management. A property management solution will eliminate any hassle and help shift the burden of managing an out-of-state rental property. 

Using property management software can be a great start, especially if you have lots of experience managing rental properties. While the software will likely be the least expensive property management solution, it still requires you to execute many tasks. Carefully research potential software and look for a specific solution for your circumstances. 

Learn how to manage a rental property remotely as we uncover the ins and outs of managing an out-of-state property as a landlord.

Find out how the right property manager can work with your HOA, ensuring the Board will love having you as a landlord renting a home in the community.

How To Rent Your Home and Stay HOA-Board Approved

If you own a home with a HOA in place, you may face hurdles when looking to put the property on the rental market. Read on to find out how property managers can work with HOAs and why you need the right one in your corner to simplify the process of renting your home. 

Homeowners’ Associations don’t have a reputation for making life easier for landlords. HOAs are in charge of managing the community spaces they govern — keeping neighborhoods desirable and properties valuable. Some believe that this means keeping renters at a low ratio, or even out entirely. 

When HOAs restrict rentals it’s because they are under the impression that tenants are not as invested in a property as owners are and won’t care for them properly. It’s assumed there will not be as much effort or investment put into home maintenance and repairs. Some even believe renters make a community less livable, eroding the value of the neighborhood. 

This viewpoint ignores the fact that almost everyone will call a rental property ‘home’ at some point in their lives and some for longer than others. Renting in a community governed by a HOA is appealing to long-term renters because they can enjoy high quality amenities and community spaces to call home. 

Thankfully, there are ways to ensure your HOA will love having you as a rental property owner in the community. It starts by outsourcing the heavy lifting to the right property manager. 

How a property manager can work with your HOA

Most HOA boards are rental friendly, but have strict rules in place that govern how your property and tenants need to be managed. Bylaws may stipulate minimum lease periods, references, background checks, and even how many times owners can rent their property during a calendar year. This means if you get the rental process wrong at any point, you could face fines or an empty untenanted home. 

The best property managers know how to work with a Homeowners’ Association to make sure you not just follow the rules, but also get the most from your rental property, by ensuring:

The right price to keep your property value high

Regular maintenance and repairs to maintain curb appeal 

Ensure accurate rental pricing for HOA compliance

Property managers are responsible for an analysis of your home and local area to determine the best possible price for the rental market. Price the rent too high and you will struggle to get applications and lose visibility. Price it too low and you could bring down the value of neighboring homes and cause issues with your HOA. 

At Belong, we combine technology with a local human touch to identify the right price for your home. We collect absurdly rich data on your home and neighborhood, empowering our crack team of quants and proprietary algorithms to crunch the numbers. But unlike fully automated estimates, our local team refines this suggestion to ensure critical nuances are never missed. This informed approach ensures you’re not only getting the best possible price for your rental, it keeps the rent at the right price for your HOA-governed community. 

Homeowners are responsible for ensuring that any residents follow the rules and regulations of their HOA, known as Covenants, Conditions & Restrictions (CC&Rs). This doesn’t change if you don’t live there. If renters fail to follow the bylaws or CC&Rs, you as the homeowner will be held liable and could face fines.

The best way to ensure your residents are the kind of people that can play by the rules is to screen for high-quality, long-term renters who will love your home as much as you do. 

Belong ensures that all tenants are 100% vetted, focusing on long-term residents that are keen to feel at home and part of the local community. In fact, Belong is all about a sense of community. By ensuring that renters (or ‘residents’) are cared for just as well as our homeowners are, they remain well informed, have access to our 24/7 concierge support and are less likely to unwittingly break HOA bylaws. 

And in the unlikely event that the vetted resident isn’t complying with HOA terms or their rental agreement, Belong doesn’t charge eviction fees if they need to move out. 

Deliver HOA-approved property maintenance and fast repairs

There’s little a HOA board takes more seriously than curb appeal. If you’ve ever tried to paint your home the wrong color, you’ll know how quickly you can get slapped with a fine for breaching the rules around the appearance of your property from the outside. 

This is because a top priority for the HOA is to keep property values high — and aesthetics is a big part of that. Like resident behavior, the conditions and appearance of your home is ultimately the homeowners responsibility. 

While you expect a good resident won’t cause any damage, it’s also not up to them to manage repairs and maintenance. This is where Belong can make a world of difference. If something breaks, we fix it. We don’t outsource repairs and maintenance to contractors or charge sky-high markups (not even for those 2am weekend emergencies!). We hire in-house vetted professionals (known as Belong Pros) to ensure every job is done correctly the first time, at the lowest rate possible. Your residents can even make maintenance requests through the app and get qualified help fast, without putting the work onto you. 

Not your garden-variety property management

When your property is taken care of to the highest standards, it’s easy for HOAs to love you as a landlord within the community. That’s why Belong goes out of its way to find residents that will love your home as much as you do — and treat it with respect and care. 

“Knowing my home is loved and cared for by my residents is something that I really appreciate because I love my home and I love sharing it with somebody else…. As a homeowner, when I say that Belong handles everything, Belong really handles everything for me.”
Sandra G, Belong Homeowner

If you have an HOA for a property you intend to rent, find out if your home qualifies for Belong here.

Property Management and HOAs: How To Rent Your Home and Stay HOA-Board Approved

Thinking about renting out a property you own? Before you do anything, read this guide.

Everything You Ever Wanted to Know About Property Management

Thinking about renting out a property you own? Before you do anything, read this guide.

Read almost any article about the generational wealth gap and you’re sure to learn some startling statistics about how much money is held by the baby boomer generation — and how little is in the hands of everyone else. 

Much of that wealth came from real estate; homes are the largest asset that boomers – as well as most people – have. And while it’s taking some time, because baby boomers are living longer than their parents, this transference of wealth is creating a new generation of “accidental homeowners.” Tens of thousands – if not more – Millennials and members of Gen X – are inheriting homes, often the homes they grew up in.

Anyone who is thinking about renting out a property they own could use one, but the kind of people described above – this emerging class of accidental homeowners – truly need the help. The people who weren’t in the market for a house, who weren’t even thinking about becoming homeowners any time soon – who, all of the sudden, might own property in a town they haven’t lived in for years. The people who aren’t even sure what they should do with the property, because they weren’t expecting to own it in the first place. As they think through what to do next, they realize there’s no single obvious choice. 

They can move into the house, but that requires uprooting their lives; moving remains one of the most stressful experiences a person can go through, right up there with grieving for a recently deceased parent, which is something many accidental homeowners might still be in the process of doing. Of course they can sell the house, but often there are emotional ramifications to that decision — especially if it’s the house they grew up in. 

The third option is to rent out the home, which under the right conditions, can turn the property into a profit center. Much of that decision has to do with the underlying economics – is there a mortgage, what are the taxes, and what is the rental market like in the area. If – taking all that into account – the decision is “yes” - that means our prototypical accidental homeowner will have to become an accidental landlord, which can also be a hugely stressful and time-consuming ordeal. 

That’s why Property Managers take center stage, at this moment of transition, in the lives of so many homeowners — and homes. Because they give people the power to rent out their homes without upending their lives. 

Basically, everything that makes being a landlord such a burden and time-suck should be the responsibility of a property manager. If you hire a property manager who does their job properly, the only thing you should have to do as a homeowner is sit on your butt and wait for the rent checks to come rolling in. 

(Elsewhere on this blog we’ve talked extensively about passive income, and how employing a property manager is an easy way to ensure the income you earn from a rental property is truly passive, in both the legal and practical senses; if you’re curious to take a deeper dive into that subject, click here.) 

The responsibilities of a property manager begin before a lease agreement gets signed, and extend beyond the time when the lease ends. 

One thing we will say, though, before we get into the details, is that there is an enormous difference between property managers, in terms of their experience, skills, responsiveness and cost. We built Belong to deliver what the old-school property management industry has lacked. 

So as you read through these duties of a property manager, keep in mind these are complex tasks that require a high level of personal attention and technology. 

Property managers are responsible for preparing the apartment for moving in (meaning, they fix anything that needs fixing, replace anything that needs replacing, and clean anything that needs cleaning). Then, either in collaboration with a real estate broker or on their own, they find you tenants: they determine the optimal monthly rent, list the apartment, show it to potential residents and field applications. They run background checks on the various applicants, a process which often includes reaching out to former landlords, to confirm they were good tenants. (They also keep any and all documentation and records they receive on file, in case they’re accused of discriminating against an applicant who didn’t get the apartment.) Then finally they pick the best candidates (though of course, the final decision is yours), draw up a lease, and have it signed and notarized. At which point the lease begins.

Any complaints that arise over the course of the lease are in the purview of the property manager. Meaning, if a resident has a problem with the plumbing in the bathroom, they call the property manager; or if, in a multi-unit building, a resident complains that his downstairs neighbor is smoking all the time, or pickling so much herring that the hallway reeks 24/7, they call the property manager.

Property Managers are also responsible for the upkeep of the property: all maintenance requests that come up, the property manager takes care of. They hire contractors, coordinate their schedules with those of their tenants, and pay them on your behalf. Of course, the homeowner has to approve these requests – unless you have given them the ability to make their own decisions; sometimes this is granted up to a pre-approved spending limit.

As problems come up, many homeowners find that their property managers are not responsive enough. This is one of the big reasons for property managers getting fired – along with excessive cost. Belong addresses the responsiveness gap with 24/7 concierge help, standing by.

Beyond taking care of the home itself, property managers collect rent and, after taking their fee, transfer the funds to the homeowner. If they need to evict the tenant for not paying rent — or for any other violation of the lease — property managers will usually take care of the situation, though more often than not landlords are on the hook for paying legal fees. 

Property Managers also keep all the books; they record how much money is coming in through rent, and how much is going out to contractors and craftspeople; so when tax season rolls around the information homeowners need for their filings should be well organized and easily accessible. 

Inevitably, there is a great deal of back-and-forth communication, often via email or phone. Fortunately for Belong’s homeowners much of this communication is handled by their concierge. 

That accounts for much of the mechanical activity undertaken over the course of the lease. A good Property Manager will take care of all those tasks with no questions asked; on the other hand, Belong – a great property manager – will attend to the emotional elements that come into play as a new resident goes through the process of transforming the house into a home. They will appreciate the sentimental side of being a resident, and help them fall in love with their home.

How does Belong accomplish this? Through a variety of ways, both big and small. The help might come in the form of assisting residents with aesthetic updates — painting a room a color that’s more them, or helping to install cool shelves for their knick-knacks and art. Or it might come in the form of creating some of that art: for example, in this blog we discuss the practical and emotional reasons why homeowners and Property Managers should consider commissioning a portrait of their home. 

In our opinion helping foster the connection between your residents and their home is as critical as making sure the plumbing is in working order. Because when you love a home, you are more likely to treat it well — and the less likely you are to move. And as anyone who owns a rental property knows, it’s that downtime between leases, when no income is coming in, that can really hurt your bottom line and create cash-flow issues. That’s why we work so hard to find residents who will love your home as much as you do – and why we try to cultivate that relationship over the course of the lease. 

The Property Manager’s post-lease responsibilities generally resemble their pre-lease responsibilities. That’s just the cyclical nature of the industry: the weeks between the end of one lease are also the weeks before the beginning of the next one.

There is one responsibility unique to this timeframe, however: the return of the former resident’s security deposit. Property Managers inspect the home after move-out, bringing in appropriate contractors to assess any damage that might have been inflicted on the property over the course of the lease; then, based on the estimates provided by the contractors, they deduct the appropriate amount from the security deposit and return the rest. 

By and large, any and every Property Manager should attend to the responsibilities outlined above. Their ability to deliver superb service – along with how and what they charge for – is a different story. Figuring out exactly what you’re paying for upfront — and what fees and upcharges are buried in the fine print — is a key part of determining which Property Management Company is right for you.

How Do You Choose The Best Property Manager?

Your instincts might tell you that the first place to look for a Property Manager is Google. After all, as a rule, Google is pretty much the first place to look for anything. But researching Property Managers might be an exception to that rule. Because for years now property management companies have been gaming the Google algorithm, securing placement among the top results not because of their mastery of landlord/resident relations, but because of their mastery of SEO. 

Instead we suggest consulting first with any locals you know: obviously property owners and landlords are great people to talk to, but anyone who has contact with Property Managers should have some insight into who’s great, who’s merely good, and who you should avoid. Contractors for instance deal with Property Managers all the time — as do real estate agents and renters. Of course your personal network won’t be as comprehensive as Google’s, but at least in this regard it’s a lot more trustworthy.

Once you have a short-list of potential candidates we recommend doing an informal background check. There are several national trade organizations for Property Managers, the most prominent being the National Association of Property Managers. You don’t have to be a member to be state-certified, but if you aren’t, that’s a red flag. 

Finally, when the list has been narrowed down to two or three potential partners, it’s time to conduct interviews. (If a property management company is unwilling to field your questions, that in itself is a red flag — count yourself fortunate that they turned you off before you gave them the opportunity to disappoint you further down the road, when the financial stakes are even higher.)

Elsewhere we’ve discussed exactly what questions to ask, but we’ll offer a crib sheet here.

Find out who they work with: the number of clients they manage at one time, the number of clients who own only one or two properties, the number of single resident homes they manage. In short, you want to know if they have experience working with an accidental homeowner like you, obviously, but it’s also important to know how big an organization they are.

Keep in mind, this is one of those situations when bigger isn’t necessarily better: if they have a handful of huge clients who are paying their bills, chances are smaller guys (like you) tend to slip through the cracks. Better to be a bigger fish in a smaller pond when it comes to Property Management Companies.

 Find out how they work: how do they identify the right tenants? How do they find contractors? How do they process maintenance requests? How do they handle rent collection? Evictions? 

Finally, ask about their fee structure. 


This question is actually kind of difficult to answer. Because outside of Belong, the cost of Property Managers can be fairly opaque: the amount quoted upfront is rarely (if ever) the amount you’ll pay, because there are so many hidden fees and upcharges.

Our Homeowners page features a useful chart that compares the way Belong charges to how typical Property Management Companies charge. We offer this not only to toot our own horn, but also, to give you a sense of what kind of hidden fees and upcharges you should be on the lookout for in the interview process. You shouldn’t necessarily eliminate a company because they charge you for some of these services: it’s critical to know though exactly what you’re paying for — and what you’ll be paying for in the future. 

Not only is it critical to get an understanding of the issues outlined above: it’s also critical that you get a sense of the kind of personalities you’ll be working with — how open and honest and transparent they are when it comes to their business practices. Remember: property managers and opacity often go hand-in-hand (outlier examples like Belong aside). The more open and frank your interviews are, the more trustworthy the companies will tend to be.

Self-Management: The Alternative To Working With A Property Manager

If you don’t live in one of the cities where Belong is operational, and you can’t find any property manager you can trust — or if you’ve read this article (and the others we’ve been linking to) and concluded that you’re willing to take on the responsibilities of managing your property — you might end up deciding to self-manage your rental home. 

Property Management 101: Before putting a property on the rental market, read this comprehensive guide to property management.

Is being a landlord a good source of passive income? Learn the ins and outs of earning income through a rental property investment.

Your Guide To Earning Passive Income On A Rental Property

At Belong, we get a lot of questions about how you can generate passive income from a rental property. People want to know if real estate is a good passive investment; how they can make money passively in real estate; and what the tax rate is on passive rental income. The questions eventually ladder up to, “How can I make $1,000 a month passively in real estate” – or, if you’re talking to someone who’s really ambitious, “Can owning rental properties make me rich?”

That people have these questions makes sense to us, for two reasons:

Reason One: If the income generated from your rental property qualifies as passive, you don’t have to pay as much tax on it. And who doesn’t want to make more money by doing less work? 

Reason Two: The answers to these questions can, at times, be hopelessly convoluted. So even if someone’s told you a thousand times how to calculate the tax rate on passively earned income from a rental property, unless you’re an accountant, you probably still aren’t sure. 

When it comes to questions relating to tax code, we always recommend that you consult with your lawyer or accountant: nonetheless, we’ll do our best to answer that question – and the other ones listed above. 

But first, before we drill down into the nitty-gritty, let’s start with the basic question: how do you define passive income? 

Passive Income is defined as income generated from an enterprise in which you are not actively involved. That can be a limited partnership, or a business in which you are a silent investor or partner, or a rental property.

It’s important to keep in mind though that property may or may not qualify as passive income – and the distinction between passive and active may not be what you think. It’s a complex subject, if not somewhat of a minefield. Because the way the IRS views passive is not that black-and-white, we urge you to learn the basics – knowledge is power – and speak with a tax advisor.  

In fact, there are specific criteria for what constitutes “passive” income, and significant tax implications as well. In what follows we provide a “summary” of what passive income means (and please note that is a big set of quotation marks around the word!).

Investopedia is a reliable source of insights on this subject; they identify three broad categories of income: active, passive, and portfolio.  This goes beyond real estate, but to drill down there, they write that: “Passive income is earnings derived from a rental property, limited partnership, or another enterprise in which a person is not actively involved. As with active income, passive income is usually taxable, but it is often treated differently by the IRS.”

So if you own a rental property, does that mean your income automatically qualifies as passive, and you benefit from any tax implications of that classification? Not necessarily.  If you are a real estate professional, your income is not passive. If you aren’t a real estate professional, but end up doing the work of one – if, for example, you act as a broker for the property – the income is no longer passive.  Further, if the IRS deems you as “materially participating” in the management of a property, the income will typically not qualify as passive.

While the below is not exhaustive – here is a link to the material participation test – if you don’t meet these standards, chances are your income is NOT passive; note that number three is a criterion which involves not just your role, but how it compares to the roles others might be playing in the process.  In other words, the 500-hour rule may not apply if there is no one contributing more hours than you are.

If you’ve dedicated more than 500 hours to a business or activity from which you’re profiting

If your participation in an activity has been “substantially all” of the participation for that tax year

If you’ve participated up to 100 hours and that is at least as much as any other person involved in the activity

If it turns out your income is indeed passive – and you have losses - there are specific passive activity rules that you need to be aware of.

The reason it’s so important to understand the details of passive income is that anyone who owns a property – or is considering buying one – might underestimate the amount of time they need to spend managing property.  Which means their tax situation can creep from passive to active before they know it.

That’s why we urge you to speak with an accountant, tax planner, or financial advisor to determine whether your current – or projected future behavior – would characterize your rental income as passive or active.

Why invest in passive income opportunities?

Now that we’ve covered some of the basics of what qualifies as passive income, you may be wondering if direct investment in residential real estate is the best way for you to participate in what has historically been one of the most reliable asset classes.  

Here’s an article from Forbes – one of many on the subject – which is headlined “Why Real Estate Builds Wealth More Consistently Than Other Asset Classes.” And here’s an article from Business Insider about a young entrepreneur who made strategic passive investments.  Note that he hired a property manager so this wouldn’t become “his job.”

If you already own residential property – whether you’ve owned it for a while, bought it for investment, or inherited it – then you will need to determine if you meet the standards for passive income we discussed, or whether you want to hire a property manager (we’ll get to what that entails and why Belong is playing that role for so many enlightened homeowners).  Or, of course, you can decide you don’t want to remain an investor in real estate, sell the property for profit,  and invest the proceeds in another asset class.

Other ways to achieve passive real estate income

Direct ownership of real estate is just one of many ways to invest in that asset class. Recently there has been a great deal of “fintech” innovation which enables you to buy fractional ownership in residential or commercial properties. Examples of these platforms that seek to “democratize” real estate investing include Fundrise; here’s a link to Investopedia’s best crowdfunding sites of 2022. In addition to taking none of your time, and being able to step in for as little as $10 – and invest more at your discretion – these platforms also provide the value of diversifying your risk across multiple properties.

REITs – or real estate investment trusts – are another passive investment opportunity which some prefer to crowdfunding.  Here’s a useful article from Seeking Alpha which lays out the reasons why so many investors find REITs to be an attractive opportunity.

Either way, we urge you to do your due diligence; there are no guarantees and as this piece elucidates, there are inherent, structural issues with crowdfunding platforms which are worthy of your consideration and attention.

Next up in our passive income journey: some important information about the role property management can play.

If you’ve made it this far, no doubt you’ve discerned that “passive” income isn’t necessarily all that passive, according to both the dictionary definition of the word, and according to the IRS’ definition.

Even if the income is generated through a REIT or a crowdfunded real estate investment, a lot of work goes into the decision making process; you have to research the sector the REIT focused on, and also (of course) the REIT itself its past performance and its ratings according to sites like Morningstar and MarketWatch. It’s also important to read any relevant analysis available through Motley Fool and Seeking Alpha. 

The more you read about the REITs in general – and the specific REITs you’re thinking about investing in – the more insight you’ll get into other key indicators you should be looking at.  Triple net leases, for example, speak to the stability of the rental flow – and, by extension, the stability of the REIT itself. Occupancy rates are another indicator that speaks to the stability of a REIT. This article in Forbes by REIT expert Brad Thomas will provide you with some insight into what he looks at before he invests.

For those of you who are looking to invest in a rental property (which, given the nature of Belong, is probably most of you), preliminary work will involve a geographic and demographic analysis of the city or town and the neighborhood you’re looking to invest in, along with a thorough examination of the rental markets in those areas, in order to determine whether there is enough demand to safely enter the marketplace.  We’ll do a deeper dive into this process in the next section, but needless to say it’s one of those things that’s easier said than done.

After you’ve purchased the home, prepared it for the marketplace, and found someone to occupy it, you have to take care of all the problems, big and small, that crop up with the property.  Which, as we’ve discussed many times elsewhere on this blog, consumes a huge amount of time and energy. Complicating the situation is the fact that you can only spend so much time on the task if you want the income to qualify as passive: in case you need a refresher re-read the previous section for more information on the 500-hour rule.

Is being a landlord a good source of passive income?

At Belong we pride ourselves on transparency and honesty, so we won’t pussyfoot around the fact that there are other forms of passive income that can indeed be more profitable.  Dividends from a stock investment, for example. Or if you’re a silent investor in a company that takes off and transforms into an Uber-sized unicorn. 

But unicorns are called that because they are one in a million – or even one in a billion, if you take into account the number of start-ups that barely get off the ground. 

Investing in a rental property might not be as sexy as being an angel investor in some hot new idea, but it’s far less risky, if done properly.  Plus, even if the yearly returns are more modest, you get to participate in the appreciation accrued by the property, if and when you decide to sell it down the line. 

All this means that the research you’re doing at this stage is that much more important.  You want to make sure that the property you’re looking at is in a strong, growing market: not only will that help you maximize the money you make from renting it, but also it means that, when you eventually sell the place, the investment will have gone up that much more. 

Also keep in mind that unless you work with a property manager the income you generate from your rental property probably won’t even qualify as passive.  So in addition to having to deal with the time and energy-sucking elements of life as a landlord, you don’t get to participate in a big part of the upside!

How much money can I make from a rental property?

This is a difficult question to answer, as it involves a lot of contingencies we can’t really account for. For example, where in the world is the rental property in question? Obviously if you have two-bedroom apartment in the middle of Silverlake you can charge a lot more rent than if you have a studio apartment in Pomona. You don’t need to be a tax attorney or an accountant to figure out that you stand to make a lot more money for the two-bedroom apartment in the more desirable part of the world. 

On the other hand, you probably do need to be a tax attorney or an accountant to figure out how to calculate the taxes you need to pay on the income generated from either of these properties.  The IRS allows people who own rental properties to deduct the amount of depreciation that occurs to the home on a yearly basis: the laws are fairly convoluted, and we advise you talk to a professional in order to gain a better grasp on this material, but the basic gist of it is that you are able to deduct a certain amount of money based on the amount that you paid for the property itself on a yearly basis.  You are also able to take deductions based on expenses the IRS deems “ordinary and necessary:” for example, money spent on repairs and utilities and homeowner’s insurance is deductible. 

There’s a baseline amount of depreciation that occurs on a yearly basis for the first 27.5 years that you own a rental property.  Again, we strongly encourage you to consult with a professional, but the way to calculate this number is by subtracting the cost of the land that the property is on from the amount that was spent on the property itself, and dividing that number by 27.5: that number is the baseline amount you can deduct on a yearly basis to account for depreciation.  That number can be supplemented by money spent on upkeep and improvements to the property, which includes anything from structural improvements to landscaping costs.  

The more you’re able to deduct, the less tax you have to pay – and the more money you can make from your rental property. 

Property managers can help ensure income remains passive

You might not realize it, but you have all the information a hacker would need to steal your tenants’ identity. Are you doing enough to keep it safe?

What Every Landlord Should Know About Cyber Security

If you're a landlord who self-manage their rental home, you have all the information a hacker would need to steal your tenants’ identity. Are you doing enough to keep them safe?

At first blush, the relationship between property management and cyber security might seem tenuous at best. “I’m self-managing one (or two) properties by email. I’m worried about finding a decent plumber, not getting hacked.” 

But think for a second about all the information you have on your tenants. You have their social security numbers. You know their previous addresses and their current address. You know their birthdays, their bank account information, and their credit card number. 

If a hacker got their hands on all that data, they’d have a field day. They could have enough information to steal two identities – yours, and your tenants. So not only would you have a big mess on your hands, but you might even have some legal liability if you didn’t take reasonable precautions. All this makes it doubly incumbent on landlords and property managers alike to closely guard the reams of personal data they have on hand.

Be prepared to safeguard tenant information

The first thing to stop and think about is whether you are literate enough yourself about how to protect your computer and mobile phone from attackers. Think of it as “data hygiene” and “data health” – you need to understand it, and put in the work to stay healthy, just like you do when it comes to personal wellness.

Start with making sure none of your passwords have already been hacked. Search your email address on HaveIBeenPwned.com to see if any of your personal information is already out there, and if any of your passwords have been compromised.

Even if you’re the rare individual who’s never been hacked – and has never given a password or your personal data to a company that’s been hacked – we still recommend having 2-step authentication in place (in fact, anywhere it’s offered, we recommend turning it on). Also make sure that you’re using a strong password that includes symbols, numbers, and capital and lowercase letters. 

Most breaches are the equivalent of leaving the front door open. The greatest risk is from schemes like “phishing” emails – where an email seems legitimate, you download it, and through that you allow a virus to enter your computer and potentially steal whatever data it holds.

When it comes to defending against such an attack is you: be vigilant, skeptical, and hesitant before opening any attachment you receive via email, even if it’s from someone you know – maybe they fell victim to a phishing attack, and hackers are using their address book and contacts to find their next victim.  

Another method of preventing phishing attacks – and any attack that uses malware – is antivirus software. Programs like Norton and Avast will scan these attachments before allowing your computer to download them to see if they contain any malicious code. 

Even if you do your best to protect your data, though, we are living in an interconnected age. Every app and software program you use – Microsoft Word, WhatsApp, Dropbox – is vulnerable. In fact, every second of every day, hackers are doing their best to compromise those platforms. These companies spend billions to protect themselves, but even so, we have all seen the headlines about breaches that have involved millions.

Sometimes, a breach of one of these platforms gets patched – so stay alert, and if there is an update available that patches a breach, do it immediately. For instance, Apple and Microsoft regularly release security patches and updated to address vulnerabilities. In some cases – like when Equifax was breached – the company offered free identity protection. 

Of course, in defending yourself against hackers and data breaches, you’re also defending your residents – not to mention the people who might have submitted an application that included a wealth of personal information but who, for whatever reason, didn’t get the house or apartment. 

There are things you can and should do, though, to further defend those people.

The first step in protecting people’s personal information is getting rid of it – especially if you no longer need it. So once a lease is signed and a new resident is moving in, delete all the other rental applications you received for your home. Get it off your computer and out of your email account. That way, if you get hacked, there will be less information for bad actors to exploit. 

We also recommend encrypting any files you need to hold onto – for instance, the rental application you received from your current residents and their lease agreement. If they’re PDFs or Word documents, it’s surprisingly simple to encrypt them and password protect them

The next step is to restrict access to the information you do need to hold onto. This shouldn’t be a huge problem if you’re self-managing your own property, but if there are other people intimately involved with the process – if, say, you have a handyman you use all the time to help with smaller maintenance requests – limit their access to only the documents and information they need. 

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