Hello BP. Not sure if this is the right place for this post or not but seems close.
I just bought my first rental property, a triplex. It needs some work, but one of the units is already rented so I'll have that income and I plan on renovating the other two units and getting those rented out asap. I will be living in the property as a owner occupied. So I have a two part question here regarding how I need to keep track of the money.
Question 1: Do I need a special account for my rent money coming in? Since everything is under my name, rent checks are made out to me. Since I will be using the rent to pay the mortgage, do I need to have a special account, separate from my personal, where money comes in to and then I write checks from that account as well or can it all be just put in one personal account? (I also have to chip in a small amount from my personal accounts to cover the mortgage)
Question 2: What is the best way to keep track of the rent coming in and the expenses going out? I plan on finding an accountant this year to help go through everything, but is a simple excel file good enough or do I need something more robust?
Thanks BP :)
@Jared Baker It is the best practice to have a separate and exclusive bank account for your rental property. All rents and expenses should go thru this account and not commingled with personal transactions. Some states require a separate account for security deposit so you should look at that too to see if you need more than one bank account. If you plan on using credit cards, have a separate and exclusive credit card account as well for the rental property.
Software or excel will both work since it's only one property. You just need to establish a proper system to track everything for the rental property so it will be easier comes tax season and also if in case you wanted to analyze how your property is performing.
Congratulations and good luck!
@Jared Baker we use software called Wave for tracking all of our income/expenses and seeing how we're performing. It's free and is designed as a general small business accounting software, but works well for rental properties. It makes categorization of expenses easy , which helps stay organized for tax season. It also allows you to send invoices and payment confirmations - we do this for all our tenants, and they seem to appreciate the credibility it adds, as well as the fact that they have records of all their payments. Excel works too, but we figure that since free software has been designed to do all this, we might as well take advantage of it.
At the end of the day (of the year, really) you will need to separate all business transactions from personal. It IS possible without opening a second account, but it is much easier and cleaner with a separate account. A personal account is fine for this purpose. Banks have free personal accounts, so no reason not to open it.
For tracking, you can use Excel or any of the expense tracking apps - just google "Best expense tracking apps" and read some reviews. Real accounting software such as QuickBooks is probably an overkill at this stage.