You Need Accurate Accounting
It’s tedious, it can be downright ugly at times and it is rarely fun, but you need to make sure you stay on top of your accounting when it comes to your rental property.
Accurate and up to date accounting can be the difference between getting a mortgage renewed at a great rate or an average rate and it can also make a huge difference in how much tax you pay.
Filing Receipts & Paperwork
My wife is the expert when it comes to filing and she has created a great system for us. Part of the system we learned through our membership with a Real Estate group and part of it we evolved to make sure it worked best for us.
The base part of the system is to create a three folder system for each property you have. It’s easiest if you make each a separate colour as well.
Designate one as tenant and put all of your tenant paperwork in here such as leases, applications, and any correspondence with tenants etc. This keeps all the tenant information together.
Designate a second file as legal. In this one keep purchase documents for the property, mortgage information and any legal documents regarding the property.
Designate a third folder as the all encompassing miscellaneous. This is where everything that doesn’t fit into the other categories falls. We keep extra manuals for appliances for the property here, quotes for repairs and general maintenance information here.
The next extended part is to create 12 folders for each of the months of the year. This is where all your bills and receipts go. If you only have one rental property and never plan on going past there, you can simply put all of this into the miscellaneous folder, but if you have two or more properties, monthly folders makes your life easier.
The rational for this is that if you buy a case of lightbulbs for your properties, they don’t go to one property, two bulbs go here, one there etc, so it can be hard if it gets bundled into one property. By separating all the bills into months it allows you to track back much easier for smaller items.
How Do I Allocate Expenses?
You can probably already tell I am not an accountant, nor do I play one on TV, so you may want to confirm with your own accountant that this works for you. Consider this my disclaimer.
We use Quickbooks Pro to track all of this. We actually are using Quickbooks 2010 still, but our bookkeeper has informed us 2012 will be worth the upgrade for us.
It allows us to go back via each property to track what has been allocated where and since we have multiple properties, when we do buy in bulk (which can be a huge cost saver!) we don’t have to worry about over expensing one property.
There are other options and while the priority is to be sure you are using something computer based to track all of this, we are pretty happy with Quickbooks versus the other products out there. So if you haven’t started computerizing your accounting yet, you may want to jump into it sooner than later.