If you are getting into the world of rental property management, you are about to enter an exciting market that will allow you to learn a lot and potentially make good money. Of course, there is plenty of work involved, for you will need to keep the buildings maintained and ensure that people pay their rent while carefully tracking your incoming funds and monitoring your expenses. If you are new to the rental property game, then these tips will help you to manage those expenses properly to retain your profit.
Why Keep Records?
Tracking expenses is important because you need to manage the flow of money going in and paying out in order to properly manage your buildings without facing a financial crisis.
In addition to ensuring that you can pay the bills, proper tracking allows you to be aware of all financial decisions so you can catch any anomalies. On top of that, you’ll need to prove your expenses and income at tax time so that you can accurately submit to avoid an audit.
Keeping records also helps you to understand the potential costs if you decide to expand. It is smart to understand the amount of cash you will need up front so you aren’t caught in a snag when it comes to acquiring new property. Understanding the risks will also help you decide the amount you want to spend on a future property or if expanding is really the right decision.
What Records Should You Keep?
There are many records and receipts that you will want to keep in order to see a full financial picture of your investments. For starters, keep a hold of all lease agreements for current and past tenants for at least a few years. This will allow you to keep track of who was living where and when. Also, you want to keep these documents until they will no longer be required for a court case or an audit. That timeline differs depending on your state.
You also need to keep track of operating expenses so they are not easily overlooked. That includes utility bills, insurance paperwork, property management fees, HOA fees, and anything else that counts as an expense. Keep these records for a few years as well.
When it comes time to report to the IRS, you will need to have proof of all rental income. In addition to bank statements, you will also want to keep proof of application fees, lease cancellation fees, and any repairs made by a tenant in lieu of rent. Keep track of your security deposits as well, though they are not treated as income by the IRS.
How to Track Your Expenses
Now that you understand the importance of tracking your expenses, you need a good system. You do have the option of keeping physical paperwork in filing cabinets or you can go digital by saving your documents as PDFs. To keep organized, merge PDF files that are related using an online merging tool.
Another option is using an income tracker, which will automate the process and generate real-time data that you can use going forward. There are many great income trackers available that are tailored exclusively to the rental business, such as Landlord Studio, which files records by renter and digitizes receipts. Another great app is Landlordy, which is great for tracking tenant payments and organizing maintenance costs.
According to ZenBusiness, you can also go with a more robust software package like QuickBooks Online Advanced, which helps you not only keep track of expenses but also to work smarter in general. A program like this makes life easier because you can connect your bank and PayPal accounts while also automatically saving receipts. This tool is also great for tax time as it sorts your expenses into specific categories.
As you can see, tracking expenses is essential if you own rental properties because you don’t want to be empty-handed when you need that information the most. Try the tips and software listed here to make your life much easier.
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