Question on Bookkeeping for Rental Properties

9 Replies

Hi Everyone,

I am hoping that there is someone with experience who can help me out. 

I currently have one rental property (in the middle of buying my second right now), and have some questions about bookkeeping. My questions are:

  • Should I keep a separate income/expense spreadsheet for each property (and should I include mortgage principle in those spreadsheets, or would a CPA rather me leave it out?)?
  • Should I organize my receipts by property, or is it fine to keep them all in one folder?
  • I also keep a mileage log, should I organize the miles I drive by property, and include them on the spreadsheets, or can I just keep a general mileage log?
  • I also have expenses that are not related to particular properties, should I keep a separate spreadsheet for these expenses? (Direct mail marketing, inspections on properties that I don't end up buying, miles driven to look at potential properties or meet with potential sellers, and so on)

I am still new to investing and bookkeeping, but I want to make this as clean and simple as possible for myself, and a CPA when the end of the year comes around.

Thanks,

Kole

@Kole Kingslien , each property is listed separately on the Schedule E, so I would highly recommend maintaining separate records for each property. It will make it much simpler.

Originally posted by @Kole Kingslien :

Hi Everyone,

I am hoping that there is someone with experience who can help me out. 

I currently have one rental property (in the middle of buying my second right now), and have some questions about bookkeeping. My questions are:

  • Should I keep a separate income/expense spreadsheet for each property (and should I include mortgage principle in those spreadsheets, or would a CPA rather me leave it out?)?
  • Should I organize my receipts by property, or is it fine to keep them all in one folder?
  • I also keep a mileage log, should I organize the miles I drive by property, and include them on the spreadsheets, or can I just keep a general mileage log?
  • I also have expenses that are not related to particular properties, should I keep a separate spreadsheet for these expenses? (Direct mail marketing, inspections on properties that I don't end up buying, miles driven to look at potential properties or meet with potential sellers, and so on)

I am still new to investing and bookkeeping, but I want to make this as clean and simple as possible for myself, and a CPA when the end of the year comes around.

Thanks,

Kole

Keep separate books and records for each property. For any expenses that are not for a specific property, you can keep them on a separate schedule. Your CPA should then know to allocate those expenses evenly across your rental properties. If you are investing in an entity, you should consider using a program such as Quickbooks. It will save you time in the long run, and will also save you money in tax prep fees as your CPA will need to complete a balance sheet when filing entity tax returns. Maintaining just an income statement will not suffice.

To follow up with some of the good advice @Lance Lvovsky gave above, certain costs are capitalized and depreciated while others can be expensed in the current period. If you're not accurately tracking these things it's going to be a nightmare for your accountant when you sell the property and they have to try to figure out what your basis in the property is. 

@Kole Kingslien ,

1 - Schedule E of Form 1040 indicates that each property is to be shown separately.  Likewise, the instructions to Form 8825 state that each rental property is to be shown separately on the Form 8825, even if the activities are combined for purposes of the passive activity rules. So you or your bookkeeper should keep them separate.   Your Tax CPA is not going to separate them out unless he.she does your bookkeeping. 

2- With receipt, please dont put in in any physical folder. You can actually take a pic and your QuickBooks will automatically link it to the property it is for, Or, use the various apps such as Receiptbank or dropbox. Some of the apps directly talk to bookkeeping software so you dont have to worry about them at the year-end. 

3- Use apps lie Miles IQ to track and it can be divided between properties. 

4- Divide the expense between properties. 

Bookkeeping will take your valuable time if you are not an accountant. Better outsource it. 

@Kole Kingslien

One thing to consider about your mortgage payment when you pay it is that it is comprised of principal payments, mortgage interest, and escrow(property taxes and insurance). So if you do your books - you should factor that in.

If you only have 1-2 properties - you may find it easy to do them in google sheets or excel. Having a separate bank account for each property while not required can make your bookkeeping life easy.

Bookkeeping is not difficult but you may find time savings by outsourcing it.

Basit Siddiqi, CPA
917-280-8544

I agree with almost everything said here....except I don't think a separate bank account for each property makes sense in the larger portfolios.  What a nightmare that would be to keep straight!

However, all of your expenses AND car miles should be broken down into each property.  I started using 1 spreadsheet with headings that apply to all of them, and then go down to list each property out with their corresponding expenses.  Then, I grew to needing a monthly accounting of each property instead of just yearly expenses, so I started a workbook that each property had a worksheet, and then they all tallied to a master worksheet.  So, I could still see my business as a whole on the master spreadsheet, but then could input individual monthly expenses, and define what they were (better categorizing them) on the individual spreadsheets.

This works out GREAT at tax time because each property is calculated on a Schedule E, so you just pull out the individual spreadsheet, but then when it comes time to obtain financing, you can start with the master spreadsheet, which is what Lenders often want to see (a P&L of the total operation).

I think it is okay to track your principal paydown, but have that be separated of to the side of each individual spreadsheet as it really has no bearing on your expenses for taxes.  It's more for your information.  However, break out your tax and insurance payments as these are deductible expenses.  So, is the mortgage interest.

I am so impressed by the fact that you can sit down and do this monthly!!  Kudos!!  Keep that up.  It is SO much easier to input these things as they happen, rather than sifting through receipts and miles logs come tax time.

Best of luck to you!

Thank for the advice Everyone! this was some very helpful information!

@Kole Kingslien Whichever way you track your money spend and received, make sure you reconcile your bank and credit card statements every month. If you do not you will find money that is not accounted for.

When you create an excel sheet, use two more columns:

- type of account, income, expense, asset, liability or equity

- property name.

This way you will be able to filter all the data as needed and reconcile your bank statements. 

We recommend Hubdoc for receipt management. You can tag each receipt by property and the best thing is that you can download all the receipts when you do not what to use Hubdoc. 

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