The longer I own rental properties (about 8 years now), the more fellow landlords I have the pleasure to meet and converse with on the pains (many) and pleasures (few) of this great, wonderful and often frustrating business. One area that seems to separate successful landlords from unsuccessful ones is in their ability to get a handle on how profitable (or not) their business is running.
Tracking the income and expenses of your various rental properties, both separately as well as in aggregate, is a very important part of landlording. Many landlords I know simply use the “box” method and accumulate rent receipts and property expenses all year long and then sort things out around tax time. Unfortunately, if you have several units or more, how do you easily track which tenants pay, which are late and how your expenses may be eating into your profits? Looking at the financial aspect of your business only once a year just isn’t sufficient.
So, what is the best method to track the profitability and cash flow of your business? We’ll if you have only only one or two units, you may just want to create a basic spreadsheet. You can easily do this by setting up a simple one that tracks rents and other income in and property related expenses (mortgage, taxes, insurance, repairs, maintenance, etc.) going out. Add up the columns at the end, include a section for “notes” and there you have a simple, but effective method to track you rental properties all year long. I have created a VERY simple spreadsheet that you might find useful. You could easily create something like this on your own… however, since I still have people asking me if they are missing anything, I have made this one available for under $8. You can use it over and over, year after year, and modify it to meet your needs:
However, if you are looking for the next level, you have several units, or you want to look at your rental property business finances from several different angles, then you need something more sophisticated. My personal choice for the past couple of years has been QuickBooks Pro. Once you get past the small learning curve, it is an excellent way to enter and track income and expenses. It also allows you to automate some of the tasks that you do, like automatically emailing or printing rental and contractor invoices, financial and accounting statements and a whole hose of other reports.
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If you decide to go the QuickBooks Pro route, there are several books out there tailored to showing landlords how to set it up specifically to track rental properties. If there is enough interest, I can do future posts on these books, as well as, property management software that interfaces with QuickBooks. Also, you can search the Landlord Business Insider for past posts on accounting and QuickBooks topics.
Whether you choose to utilize a spreadsheet, QuickBooks, or any other program, the important thing is that you treat landlording like a business and keep track of your business carefully. Once you own properties, quickly realize that it is not a game of monopoly… it is a small business that can help make or break your financial future!
-Steve Boorstein
Author/Landlord
LandlordBusinessInsider.com
HowToBuyRentalProperty.com
ManageRentalProperty.com