Record keeping can be a bit of a challenge, but good documentation will help you stay organized and compliant as a landlord. Commit to doing contemporaneous record keeping, which means you record and track things as they happen. This makes keeping good records easy.
Owning a rental property is a business and there are a lot of expenses you can take against it at tax time. However, you can only benefit from these deductions if you write them down and recall them. There are several good and inexpensive software programs available to you. QuickBooks has a template for landlords. Good recordkeeping need not be difficult. In April, you can easily go back and see all your income and the money that you’ve spent, and it makes it simple at tax time.
If a dispute arises between you and your tenant and you go to court, judges are impressed with a well-organized document file. You can easily pull the lease or any Three Day Notices you have filed. You will have any documents that the court asks for in one place, and you’ll know they are complete. Judges are also impressed with a well-organized contemporaneous rent roll so you can show the judge exactly what the tenant owes you.
Budgeting and Holding Money
The idea of budgeting and holding money is an important one. Very few owners do this but the owners who do it are by far the most sophisticated investors. For example, your roof has a life expectancy. If it’s brand new, then maybe you have 20 or 30 years of life in your roof. But it will fail at some point. If you know you’re going to sell the property in 10 years and you have a brand new roof, you don’t have to save for a roof. But if the roof is 15 years old and you plan to have the property for 20 years, figure out what the new roof will cost and start putting aside that money. Saving for things like roofs, heating, air conditioning and other systems that are landlord responsibilities will help you be prepared. When those systems fail, you don’t have a cash flow emergency. It provides a little buffer so you have some money set aside for those things that are legitimate business expenses. It’s really a best practice and for most of the owners who have been able to do this, it’s made them happy with their rentals.
If you have any questions, please contact us at Aborn Properties and we’d be happy to tell you more.