Keeping Investment Property Records The Easy Way
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.
I would always put the bookkeeping off until the next day, the next month... and kept pushing the task later and later. At the end of the year I realized that I had not recorded a single receipt or expense for that whole year! Since I always tell other investors NOT to do this, I was shocked at how I had allowed this to happen.
And this was just the work we do to prepare everything for our accountant " we don't even do our own taxes!
Thank goodness that Dave (my husband) and I had a five step system in place already. That made entering a year's worth of receipts relatively quick and easy.
In the beginning, you have to pay careful attention to your records to see where you can cut costs and increase income. Once you've done this for a while and you have a better idea of your costs, it might be safe to pay less attention every month. But in case you fall far behind (like I did), there's an easy way to keep investment property records:
1. Every property you own should have it's own bank account- this is especially important if you have partners. Any activity with this bank account (deposits from income as well as withdrawals for expenses) should be related to a particular property. This will make it easy for you to determine whether the property is making you money or is costing you money overall.
2. When you use a personal bank account or your credit card to purchase something for a property, always record the address of the property for which the purchase was made as well as the reason for the expense on the receipt immediately. If you don't record the information immediately, chances are you will not remember in a week, let alone in a year! This also goes for all expenses incurred when meeting with partners to discuss investments- be sure to record who was present at the meeting and which properties were discussed, as well as what specifically you discussed about those properties.
3. Weekly - review your mail and pay the bills. If you only have one rental property you might get away with doing this less often, but with a bunch of properties, you'll need to set aside a bit of time each week to review all of the bills. You could hire a bookkeeper to do this, but then you'll want to have monthly reports sent to you about the bills that are being paid so that you know when expenses are climbing unexpectedly. So, you'll still need a bit of time to review the report.
4. If you're not the type to enter bills and statements in your spreadsheet right away, (and honestly, we aren't always that type ourselves) then using stacking drawers is the best way to go. What you should do is to designate a separate drawer for each property. Then you can simply throw all the paperwork, including statements, expenses, tenant communications and bills into the drawer for that particular property.
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. - 23223
I would always put the bookkeeping off until the next day, the next month... and kept pushing the task later and later. At the end of the year I realized that I had not recorded a single receipt or expense for that whole year! Since I always tell other investors NOT to do this, I was shocked at how I had allowed this to happen.
And this was just the work we do to prepare everything for our accountant " we don't even do our own taxes!
Thank goodness that Dave (my husband) and I had a five step system in place already. That made entering a year's worth of receipts relatively quick and easy.
In the beginning, you have to pay careful attention to your records to see where you can cut costs and increase income. Once you've done this for a while and you have a better idea of your costs, it might be safe to pay less attention every month. But in case you fall far behind (like I did), there's an easy way to keep investment property records:
1. Every property you own should have it's own bank account- this is especially important if you have partners. Any activity with this bank account (deposits from income as well as withdrawals for expenses) should be related to a particular property. This will make it easy for you to determine whether the property is making you money or is costing you money overall.
2. When you use a personal bank account or your credit card to purchase something for a property, always record the address of the property for which the purchase was made as well as the reason for the expense on the receipt immediately. If you don't record the information immediately, chances are you will not remember in a week, let alone in a year! This also goes for all expenses incurred when meeting with partners to discuss investments- be sure to record who was present at the meeting and which properties were discussed, as well as what specifically you discussed about those properties.
3. Weekly - review your mail and pay the bills. If you only have one rental property you might get away with doing this less often, but with a bunch of properties, you'll need to set aside a bit of time each week to review all of the bills. You could hire a bookkeeper to do this, but then you'll want to have monthly reports sent to you about the bills that are being paid so that you know when expenses are climbing unexpectedly. So, you'll still need a bit of time to review the report.
4. If you're not the type to enter bills and statements in your spreadsheet right away, (and honestly, we aren't always that type ourselves) then using stacking drawers is the best way to go. What you should do is to designate a separate drawer for each property. Then you can simply throw all the paperwork, including statements, expenses, tenant communications and bills into the drawer for that particular property.
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. - 23223
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 rental properties, finding and keeping great tenants, and easy ways to make rental property recordkeeping simple and more profitable.
posted by X - Men @ 2:24 AM
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