Real Estate Investor Tip 101: Recordkeeping
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.
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!
Thankfully my husband Dave and I have a really good system in place - so entering receipts actually went quickly and easily (considering it had been a year since I had done anything).
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 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. 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. 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. On a quarterly basis take everything out of the drawer for each property and enter it into the spreadsheet that you use to track income and expenses. The spreadsheet can be simple spreadsheet that you create in Excel, or you can find another type of software online- a few good options are offered by Buildium and 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. - 23167
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!
Thankfully my husband Dave and I have a really good system in place - so entering receipts actually went quickly and easily (considering it had been a year since I had done anything).
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 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. 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. 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. On a quarterly basis take everything out of the drawer for each property and enter it into the spreadsheet that you use to track income and expenses. The spreadsheet can be simple spreadsheet that you create in Excel, or you can find another type of software online- a few good options are offered by Buildium and 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. - 23167
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 @ 10:40 AM
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