Record Keeping: How to Manage and Organize Your Real Estate Investment Files
It was about two years ago when my wife and I made an appointment to see our tax professional. In order to better prepare ourselves for the meeting, we decided to organize all the paperwork associated with our rentals the night before. Unfortunately, it wasn’t until about four hours later that we found everything we needed for the next day.
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It was then that I realized we didn’t have a good system in place for managing the paperwork for our rental business. We found paperwork in the most random places – seriously (I found a plumbing invoice inside one of my wife’s yearbooks)!
The good news is that, at the time, we only owned a handful of rental properties, so the damage was minimal. However, this ordeal taught me a very important lesson in organization – mainly, I needed to come up with a system to keep better records.
In today’s post, I would like to share what I have done to manage my own records.
I share this information in hopes that YOU, the readers, will help ME and other readers improve our systems by sharing what YOU do in your business. So please be sure to share your organization model below in the comments section.
Now, back to the post . . .
After I did my taxes, I looked over all the forums, invoices, receipts, tax info, etc. that I acquired throughout the year and determined that funneling all the paperwork through three “buckets” would be the most effective way.
The first bucket I decided to use was what I call an “Acquisition Folder.”
Here is a list of what I insert into the folder:
- Cover: Photo of the subject property
- Photo Tab: Photos of the inside and outside of the property
- RE Paperwork Tab: Purchase contract, counter offer, inspection reports
- Make-Ready Tab: First page(s) contains list of make-ready repairs; each additional page contains contractor/ handyman quotes
- Purchase Comps Tab: Printouts of any recently sold comparable properties
- Rental Comps Tab: Printout of any comparable rentals
After we obtain ownership of the subject property, we then insert the important documents into another folder specifically for tax time. (Side Note: three things you should consider purchasing are: a three-hole puncher, scanner and label maker.)
Here are the documents we insert into this folder:
- Overview Tab: An easy-to-read document which has a simplified profit and loss statement (how much I made and how much I spent)
- Utilities Tab: Invoices from past utility bills
- PM Statements Tab: Monthly property management statements, year-end statements and any additional statements from our management company
- Invoice Tab: Receipts for any work done on the subject property
- Bank Statements Tab: Monthly mortgage statements, mortgage interest statement and any additional information regarding the mortgage where applicable
- Tax Tab: Property tax receipt
- Closing documents: A letter-sized copy of the closing statements
Lastly, in addition to keeping a tax folder, we also got a file cabinet which has a section tabbed for each rental property we own. If you are just starting out, I recommend picking up a plastic file storage box. These are around ten dollars and take up less space than a traditional file cabinet.
These files are not as specific as the tabs on our folders are. We’ve found that just having all the information in one place is helpful enough to keep track of it. Also, we file the paperwork lengthwise (legal-size) vs. widthwise (letter-size) to accommodate the legal-size documents that real estate paperwork often comes in.
This file contains the following:
- Purchase contract
- Final closing statements
- Mortgage information – any and all related info goes here
- Tax information
- Refinancing documents
Keeping everything broken up into these three buckets has helped us keep our sanity throughout the various phases of each transaction. I still spend quite a bit of time preparing for tax season, and every so often I misplace an invoice, but now I can locate most any document within a matter of minutes – which is way better than spending a solid evening looking through my wife’s old yearbooks to find a plumbing invoice.
Readers, throughout this post, I’ve shared the system that’s helped me, but I am curious to see what YOU do to keep your records organized. Please take a few seconds to share your input below in the comments section.
I look forward to hearing your suggestions below.
Photos: Jessica Mullen, Arthur Garcia