Let's face it, tracking expenses for rental properties is one of the most time-consuming aspects of being a landlord. It's one of those tasks that no one wants to tackle. There is always something more important to do.
Of course, that is until it comes to filing a tax return, applying for a loan, or facing the dreaded IRS audit. Just when you think you've got it sorted, you realize that an essential receipt or bill is missing.
Keeping accurate records is essential for any landlord’s peace of mind. Having everything in good order makes filing tax returns more straightforward, and you don't have to send the IRS more money than you need to. You also know that every contractor or employee has been paid the right amount by the due date. You have a record of your tenants' payments. And if audited, it will be much faster and smoother with accurate record-keeping.
Accurate record-keeping is just as crucial as collecting rent on time. The bottom line is that your business depends on both.
So, what are the essential records you must keep as a landlord? Here is a list of some of the most important documents:
You will also have to keep track of deductible expenses. This is often a little more complex as they may not occur regularly or are difficult to track when employees have an expense account. Some of these include:
While it is still common to have a hard copy of your documents, the digital transformation has encouraged more and more landlords to move to digital record-keeping. With so many records and documentation in real estate, it makes sense to look for industry-related digital solutions.
Property management apps or rent collection apps have an arsenal of tools to help you keep track of your finances, contracts, communications, and more. Let’s look at some of the features that the best property management software has to offer.
Landlords and property managers are busy people and can’t be tied to a desk all day. You must keep on top of all business operations and have quick access to transactions and documentation. When your property management app is on your smartphone, you have the best of both worlds.
You must keep copies of deductible expenses you claim in your tax returns. If you take a client out for dinner or fill up your gas tank, these expenses need to be recorded in case of an audit. Property management apps enable expense recording from your smartphone. You just need to take a photo of the receipt, name it, and categorize it. This way, you never have to worry about keeping paper receipts.
Using a property management app allows you to set up recurring payments. This is an ideal solution for making mortgage payments or other fixed obligations—one less thing to worry about. Additionally, your tenants can also set up recurring payments for their monthly rent. Many landlords find that setting up automatic payments dramatically reduces the number of late rent payments to boot.
By connecting your business bank account to your property management app, you can access—both incoming and outgoing—from the app. This feature enables you to attach transactions to specific properties and better understand the profitability of that property.
Property management apps are ideal for keeping track of maintenance requests. You can also keep a list of maintenance professionals in the app and assign tasks as they come up. What’s more, you can track maintenance jobs and pay the contractor upon completion.
Suppose some expenses are the tenant’s responsibility. In that case, you can easily pass those on to the tenant and track them through apps, as well.
By tracking all income and expenses in an app, you can quickly generate several different reports. This is ideal when you must file tax returns or get documents ready for an audit. For example, you will be able to generate income expense reports, cash flow statements, rental owner statements, and balance sheets.
If you use a property management app, you can speedily send financial information to your accountant. Or if you need to include them in your tax returns, you can download them as a spreadsheet or PDF. To get a better understanding of your financial situation, you can even download property specific reports.
Now that your records are in top shape, you can start to explore some of the other advantages the best property management apps have to offer.
Here’s a brief overview of what some of the top property management apps offer:
Keeping documents in good order is a laborious yet essential task for all landlords. So, it makes sense to use digital solutions to keep all your expenses in one place. This way, you can automate many of the processes required to keep track of your financial obligations. Not only will you become a better landlord but you will also free up time to do other things.