If you are a first time landlord or an experienced one who has been part of the business for a few years, one thing is for certain, bookkeeping is not fun, but a necessary task. It pays to keep all your papers in order throughout the year instead of just throwing all the bills in a file or box and trying to sort them out during the tax season. Here are a few tips and tricks that can help you keep your books.
The first thing that you have to get going is a spreadsheet, it works better than a large notebook and can be edited at any time. Next, separate the income, expenditure and capital improvements.
Your major source of income will be the rent. Sometimes, you may receive reimbursement from tenants for services you offer, or get settlements from insurance; they are all sources of income. If you are paid by check, make a note of the check number or simply make a copy before depositing it. If the rent comes in by cash, write out a receipt for it and keep a copy for yourself.
Expenditure is the outflows that goes into the property – anything you do for the property like repairs and maintenance is included here. The biggest outflow will be the mortgage payments and interest.
Anything that adds value to the property and will potentially bring in more income in future can be added here. Major overhauls and things like replacing carpets new HVAC systems and landscaping, for example.
Finally, organize all of the receipts. There is no one way to do this, so categorize by property, month and year. Have files with all the needed markings and just drop them in as you get them.
Quick tip: Open a separate bank account for your rental business, speacially if you have more than one property. It is not a legal requirement, but more of an organizational strategy as it is easier to find inflow and outflow of money and tabulate it if the only transactions in that account are business related.
There are many online software packages and applications that make this process simpler and more efficient. Also, if you are not into the whole deal of bookkeeping and would rather pay someone to do it for you, hire a professional bookkeeper or a find a property management company that can take care of the bookkeeping for you.