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.
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.
Of course, even with this system, you'll need to pay attention to your bills to make sure you are aware of how much money is coming in and how much is going out on a monthly basis. This way you can eliminate wasteful spending and pocket more money. The good news about the system is it works even if you're little lax at times, like I was.
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 spend money out of your own pocket or on a personal credit card, get a receipt and write the address of the property on that receipt, the specific unit number (if applicable) and the REASON for that expense. Don't expect to remember why you have a Home Depot receipt in your wallet two weeks, let alone a year, later. Even if you end up with 15 receipts in your wallet for different properties, if you write on the property information on them before you put it in your wallet, you will have no problem tracking and recording that expense. This also goes for coffee or dinner with your partners. If you have a meeting about your investments, record on that receipt who was there, the specific address or addresses of the properties you own with the partner(s) and what specifically you talked about. Write all of this on the receipt before you put it in your wallet.
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. After you've reviewed and paid the bills, you SHOULD enter them into your property income and expense spreadsheet...but we rarely do. We're busy and sometimes we'd rather watch a movie than work. So, we have a set of stacking drawers - one drawer for each property - and we throw everything that comes in related to that property into that drawer. This includes notices, bank statements, tenant communications and any receipts or bills.
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).
If you follow steps 1 through 4 but often skip out on Step 5, you will regret it when you have to sit down and catch up. However, you can rest assured that you aren't missing receipts or losing track of money that you've spent or earned! - 23212
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.
Of course, even with this system, you'll need to pay attention to your bills to make sure you are aware of how much money is coming in and how much is going out on a monthly basis. This way you can eliminate wasteful spending and pocket more money. The good news about the system is it works even if you're little lax at times, like I was.
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 spend money out of your own pocket or on a personal credit card, get a receipt and write the address of the property on that receipt, the specific unit number (if applicable) and the REASON for that expense. Don't expect to remember why you have a Home Depot receipt in your wallet two weeks, let alone a year, later. Even if you end up with 15 receipts in your wallet for different properties, if you write on the property information on them before you put it in your wallet, you will have no problem tracking and recording that expense. This also goes for coffee or dinner with your partners. If you have a meeting about your investments, record on that receipt who was there, the specific address or addresses of the properties you own with the partner(s) and what specifically you talked about. Write all of this on the receipt before you put it in your wallet.
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. After you've reviewed and paid the bills, you SHOULD enter them into your property income and expense spreadsheet...but we rarely do. We're busy and sometimes we'd rather watch a movie than work. So, we have a set of stacking drawers - one drawer for each property - and we throw everything that comes in related to that property into that drawer. This includes notices, bank statements, tenant communications and any receipts or bills.
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).
If you follow steps 1 through 4 but often skip out on Step 5, you will regret it when you have to sit down and catch up. However, you can rest assured that you aren't missing receipts or losing track of money that you've spent or earned! - 23212
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 bookkeeping simple and more profitable.
posted by X - Men @ 7:25 AM
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