Before You Start

This guide assumes you have an active Xero subscription and a basic understanding of real estate depreciation rules (e.g., MACRS, straight-line).

Overview

40 min
Setup Time
Advanced
Difficulty
Monthly
Maintenance

What You’ll Learn

  • How to leverage Xero Tracking Categories for properties
  • Setting up the Xero Fixed Asset Manager for depreciation
  • Tracking income and expenses per investment property
  • Generating comprehensive property-level financial reports

1. Preparation Steps

Ensure these essential accounts are set up in your Xero Chart of Accounts:

Required Accounts

  • Rental Income (Revenue)
  • Property Operating Expenses (Expense)
  • Accumulated Depreciation (Fixed Asset)
  • Building - Investment Property (Fixed Asset)

Optional (but recommended)

  • Land - Investment Property (Fixed Asset)
  • Tenant Deposits Held (Liability)
  • Loan Interest Expense (Expense)
  • Property Management Fees (Expense)

2. Choosing Your Tracking Strategy

You have several options to track properties in Xero, each with distinct advantages and disadvantages.

Method A: Xero Tracking Categories

Utilizes Xero’s built-in tracking for segmented reporting.

Pros:
  • Consolidated view of all properties.
  • Cost-effective (no extra subscriptions).
  • Easy to run P&L by property.
Cons:
  • Limited to two tracking categories.
  • Can get complex with many properties.
  • Budgeting per property is less robust.

Method B: Separate Xero Organizations

Each property or portfolio segment has its own Xero subscription.

Pros:
  • Full financial statements per property.
  • Clear separation of entities.
  • Ideal for large, independent portfolios.
Cons:
  • Higher subscription costs.
  • No consolidated reporting without external tools.
  • More administrative overhead.

Expert Tip: For most real estate investors with a moderate number of properties, we recommend utilizing Xero’s Tracking Categories. This provides granular reporting without the added cost and complexity of multiple Xero subscriptions.

3. Step-by-Step: Implementing Tracking Categories

Here’s a high-level workflow for setting up and using Tracking Categories for your properties.

Here is a sample code block to illustrate a property transaction structure in a hypothetical integration.

{
  "transaction_id": "TXN-00123",
  "date": "2025-09-15",
  "account_code": "4000",
  "description": "Rent Income - 123 Main St",
  "amount": 1500.00,
  "tracking": {
    "property_name": "123 Main St",
    "property_id": "P001"
  }
}

4. Setting Up Depreciation

  1. 1

    Activate Fixed Asset Manager

    Navigate to Accounting > Fixed Assets in Xero and ensure the module is activated. You may need to enable it under organization settings.

  2. 2

    Define Asset Types

    Create new asset types, such as ‘Residential Investment Property’ or ‘Commercial Building’, assigning appropriate accounts like ‘Building - Investment Property’ (asset) and ‘Accumulated Depreciation’ (contra-asset).

  3. 3

    Add Individual Fixed Assets

    For each property, create a new fixed asset. Enter its purchase date, cost, depreciation start date, and choose the correct depreciation method (e.g., straight-line) and effective life.

  4. 4

    Review and Run Depreciation

    Regularly review your depreciation schedules. Xero will calculate the depreciation journal entries for you to post monthly or annually.

Common Error: Incorrect Depreciation Start Date

Ensure the ‘Depreciation Start Date’ is accurately set for each asset. An incorrect date will lead to miscalculated accumulated depreciation and asset values.

5. Reporting and Analysis

Monthly Review Checklist

  • Run ‘Profit and Loss by Tracking Category’ report
  • Verify all income and expenses are assigned to a property
  • Post monthly depreciation journals from Fixed Assets
  • Reconcile bank accounts for all property-related transactions

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