Five Steps To (Almost) Effortless Rental Property Recordkeeping
I have a bit of a confession to make this year's taxes were a nightmare. Last year was a crazy year for my husband and me. We got married, we started adventure racing which took up nearly 20 hours a week for training, and we started an online real estate investing education business. We also dealt with a property renovation and a few other real estate investing odds and ends. So - every month when it was time for me to update my rental property records I just couldn't find the time.
It always seemed like next month would be a better month to handle the receipt reviews and bookkeeping, but the reality is that I did the exact thing I tell other investors not to do: I let the entire year of receipts, expenses and records pile up without recording any of them!
And this was just the work we do to prepare everything for our accountant " we don't even do our own taxes!
Fortunately, Dave (my husband) and I have a great system already in place, so entering the receipts took no time at all, especially when you consider the fact that I hadn't entered any for an entire year.
I still recommend you stay on top of your income and expenses to ensure you are quickly identifying areas where you can reduce costs or increase income. You'll need to do this carefully for a little while until you become familiar with what is a normal cost for something. But, just in case you fall behind like I did, here's an easy way to keep your records clear for rental properties:
1. Each and every property you own should have it's own bank account. This is especially important if you have partners. By operating your income and expenses for the one property out of the one bank account you'll know by examining the bank statements if that property is making or losing you money. Don't use this bank account for anything else.
2. Eventually, there will come a day when you have to purchase something for your property out of your own pocket. Before that receipt goes in your wallet, write the property address and unit number (if applicable) and the reason for the purchase on the receipt. This way you don't wind up with numerous receipts at the end of the year and you can't remember what any of them are for. (Did that new tile go in house number one or house number two?) This also applies if you're having business meetings over lunch or dinner with your investment partners about your house- be sure to record which investment properties you discussed and who was present.
3. Every week, look over and pay your bills. People with only one rental property can get away with doing this less often, but if you have more than one property, doing this on a weekly basis is a very good idea. True, you could hire a bookkeeper for this, but you still have to get monthly statements sent to you so can be aware if some bills are unexpectedly high.
4. Of course, now is the time you should enter those bills and statements, but you don't have the time to do it now, right? That sounds familiar. So if you're not going to enter them every week, then it's a good idea to get a set of stacking drawers. Each drawer should be reserved for one property and should contain all paperwork regarding that property. This includes all statements, communications, receipts and bills.
5. Now that everything is in one place for each property, you can get away with filling out your income and expense tracking spreadsheet about every 2-3 months. You can use a simple Excel spreadsheet or you can find a program offered by companies like Buildium or Quicken.
Steps 1 through 4 will make things easy on you at the end of the year- even if you disregard step 5 more often than not. Using this system is an easy and effective way to help you keep track of income and expenses related to your rental properties. - 23159
It always seemed like next month would be a better month to handle the receipt reviews and bookkeeping, but the reality is that I did the exact thing I tell other investors not to do: I let the entire year of receipts, expenses and records pile up without recording any of them!
And this was just the work we do to prepare everything for our accountant " we don't even do our own taxes!
Fortunately, Dave (my husband) and I have a great system already in place, so entering the receipts took no time at all, especially when you consider the fact that I hadn't entered any for an entire year.
I still recommend you stay on top of your income and expenses to ensure you are quickly identifying areas where you can reduce costs or increase income. You'll need to do this carefully for a little while until you become familiar with what is a normal cost for something. But, just in case you fall behind like I did, here's an easy way to keep your records clear for rental properties:
1. Each and every property you own should have it's own bank account. This is especially important if you have partners. By operating your income and expenses for the one property out of the one bank account you'll know by examining the bank statements if that property is making or losing you money. Don't use this bank account for anything else.
2. Eventually, there will come a day when you have to purchase something for your property out of your own pocket. Before that receipt goes in your wallet, write the property address and unit number (if applicable) and the reason for the purchase on the receipt. This way you don't wind up with numerous receipts at the end of the year and you can't remember what any of them are for. (Did that new tile go in house number one or house number two?) This also applies if you're having business meetings over lunch or dinner with your investment partners about your house- be sure to record which investment properties you discussed and who was present.
3. Every week, look over and pay your bills. People with only one rental property can get away with doing this less often, but if you have more than one property, doing this on a weekly basis is a very good idea. True, you could hire a bookkeeper for this, but you still have to get monthly statements sent to you so can be aware if some bills are unexpectedly high.
4. Of course, now is the time you should enter those bills and statements, but you don't have the time to do it now, right? That sounds familiar. So if you're not going to enter them every week, then it's a good idea to get a set of stacking drawers. Each drawer should be reserved for one property and should contain all paperwork regarding that property. This includes all statements, communications, receipts and bills.
5. Now that everything is in one place for each property, you can get away with filling out your income and expense tracking spreadsheet about every 2-3 months. You can use a simple Excel spreadsheet or you can find a program offered by companies like Buildium or Quicken.
Steps 1 through 4 will make things easy on you at the end of the year- even if you disregard step 5 more often than not. Using this system is an easy and effective way to help you keep track of income and expenses related to your rental properties. - 23159
About the Author:
Learn How to Retire with Real Estate with Julie's free Real Estate Investing Starter Tips Guide. Learn how to become a millionaire real estate investor with massive wealth with tips like: How to find quality investment properties, finding and keeping great tenants, and easy ways to make investment property bookkeeping simple and more profitable.
posted by X - Men @ 3:41 AM
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