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Keeping Investment Property Records The Easy Way
Even though I should know better, I got behind in my record keeping last year and had to struggle through everything during tax time. I just couldn't find the time to keep the property management books up to date. Between starting up our online real estate investing education business, a property renovation, getting married and our extracurricular activities (we love adventure racing), I didn't have much time left for bookkeeping.
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!
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. 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. Once a week, study and pay the bills. With one property you might be able to get away with doing this less than once a week, but it's absolutely essential to do it every week if you have more than one property. A bookkeeper isn't necessarily the answer because you would still have to spend time reviewing the monthly reports that you would receive regarding your properties. If you don't review your bills or the report sent by a bookkeeper, you won't be aware of expenses that could be increasing unexpectedly.
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.
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.
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