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.
Even though I had intended to get caught up when I had some free time, that time didn't arrive. I was soon horrified to realized I had a year's worth of records, receipts and expenses and I hadn't recorded a single one.
And this was just the basic bookkeeping required in order to turn everything over to the accountant who actually does our 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.
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. Open a separate bank account for EVERY property you own. ONLY use this account for income and expenses related to this particular property. To me this is ABSOLUTELY essential when you have partners involved, but it's smart to do even if you only own one rental property. It keeps your records clean and simple, and you always know whether your property is making money or costing you money - because there is either money in the account or there isn't!
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. 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. 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. Once every 2 - 3 months, take out everything you have for that property and enter it into an income and expense tracking spreadsheet (or fancy software program if you prefer " check out the programs offered by companies like Buildium or Quicken for good options).
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. - 23200
Even though I had intended to get caught up when I had some free time, that time didn't arrive. I was soon horrified to realized I had a year's worth of records, receipts and expenses and I hadn't recorded a single one.
And this was just the basic bookkeeping required in order to turn everything over to the accountant who actually does our 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.
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. Open a separate bank account for EVERY property you own. ONLY use this account for income and expenses related to this particular property. To me this is ABSOLUTELY essential when you have partners involved, but it's smart to do even if you only own one rental property. It keeps your records clean and simple, and you always know whether your property is making money or costing you money - because there is either money in the account or there isn't!
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. 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. 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. Once every 2 - 3 months, take out everything you have for that property and enter it into an income and expense tracking spreadsheet (or fancy software program if you prefer " check out the programs offered by companies like Buildium or Quicken for good options).
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. - 23200
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 recordkeeping simple and more profitable.
posted by X - Men @ 2:53 AM
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