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.
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 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.
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 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.
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! - 23162
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 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.
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 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.
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! - 23162
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 @ 3:41 AM
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