How do you track your expenses? Looking for best practices

28 Replies

I'm just curious what others do to track their rental / business expenses, like their SOP. I'm tying to develop a best practice.

For instance, this is what I do:

  • 1. Create a google business email / drive and create folders per property and business.
  • 2. Create separate folders per month within each property / business.
  • 3. When I have a receipt, I will take a picture and email it to my business address
  • 4. Save it in the folder under the following naming convention: Vendor_Purpose_Cost_Date
  • 5. Input the charge into my property accounting software (Stessa) along with the receipt.
  • 6. Hire a bookkeeper to quality check / organize materials for CPA

*** Pro tip - You can download google drive to your desktop and have it as a computer drive (e.g. like your C drive) for easy uploads. 

What do you do to track your costs? 

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Use a business account for all business transactions, exclusively. Use a receipt manager that connects to your bookkeeping software to attach receipts to expenses. Use a real bookkeeping software (not a spreadsheet, I beg of you) to track all of the expenses. Stessa is acceptable when you have a small portfolio, upgrade to Xero when you have more properties. An investor specific software that includes bookkeeping alongside tools to manage rentals is also fine. Have your pro check your bookkeeping file for questions and errors at least quarterly, making sure to schedule a little more thorough review in December to prepare for tax season.

All my receipts going into one big folder for over 20 properties. I write the property on the top of the receipt. 

Then I sit down once and put everything into my tax spreadsheet in January which sums up everything by category and property. 

I also go through my business credit cards and checking account to make sure I have everything.  

I add in any 1099s I get.

I then add in my income from my rent roll spreadsheet which is updated monthly. I have a tab for every property but one summary tab that pulls in the final numbers for each property.

I then have everything ready for my CPA to easily do my taxes. 

Easy Peasy. 

@Dennis Gavilanes - Thank you! I have 7 rental units and a total of 3 properties. I also am a signing agent and a real estate professional so I keep track of those business expenses in a separate bucket. 

@Chelsea Monk - Great advice. I do have my bookkeeper run my books every month. I receive a balance sheet and income statement from him. I was planning on transitioning my books to "quick books" as of the first of the year since most CPAs and other accounting professionals prefer this platform. What are your thoughts on that?

@John Underwood - Nice sounds like a solid system. Thank you for your insight. 

P.S. If anyone wants the contact info to my bookkeeper, I'm happy to share. 

@Andrew Freed you can use QuickBooks if you prefer, but you have to have a minimum of QBO Plus in order to use class/location tracking. It's super expensive (way overpriced in my opinion). I actually prefer Xero's Growing plan because it's more reasonably priced for the same functionality and it's super quick and easy to set up for investors.

Following. I would love to find a system that was better than keeping physical receipts, especially if it was cloud based.

I have a hard time keeping track of a mountain of receipts while doing large remodels.

my property manager tracks all the maintenance/operating expenses on appfolio, I track all the rehab expenses on a spreadsheet. I learned that you cannot tell how much you made or lost on a property unless you give it a minimum of 5 years...

why making it complicated with tools that are not purpose built? Collecting rent charges automatically that end up in a automatically reconciled income stream in your accounting system makes a lot of sense, even recurring expenses can be recorded this way, all while receiving maintenance tickets on the same app, communicate with tenants and archive lease agreements and any other property related documents. 

@Austin Fogt. Quickbooks will do what you are asking for a cloud based accounting software.  Xero will also do that, the entry level is cheaper here but doesn't have as many features as Quickbooks.  I like quickbooks and prefer it. @Chelsea Monk like Xero.  Both of us will say our software is the best.  But its important that what ever you use you like.  Then when it is time to find a professional, find one that likes your software because that is what you are comfortable with.  I am happy to speak with you about the pros and cons of Quickbooks.  I am sure @Chelsea Monk would be happy to speak with you about Xero. There is also a third option which is Wave accounting. It is a free software and works nicely, but with anything free you it gives up a lot of features.

Property management softwares are just that, property management with accounting as an add-on.  It gets the job done but not as well as an accounting software.  

Hope that helps.

Absolutely correct, @Todd Lennig - we all have different preferences. Although I would argue that Wave is not an adequate software for rental property management, as it's too limited to do the needed entries efficiently. Also, unless they've changed it in the last 6 months, the income gets duplicated when you invoice through there.

Also, I'm curious what features you feel are missing from Xero that QBO offers? I haven't found anything of importance, so I'd love to know your perspective on this!

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My approach is very similar to @John Underwood. Only two differences - I do my own taxes, and at some point I switched from a spreadsheet to Quickbooks. Spreadsheets worked well enough for 5-10 properties, beyond that they become cumbersome. 

I use the desktop version of QB, not QBO. Takes a while to initially set it up, but once everything is set up it is quite convenient. 

@Chelsea Monk what advantages does Xero have over Stessa? Is it user friendly for a DIY book keeper in your opinion? Will Xero auto populate and auto assign transactions to specific properties tied to separate bank accounts?

@Andrew Freed For the first few years of investing and operating my two small businesses I used simple google sheets, a filing cabinet, and email files to separate and enter each expense. As my portfolio and businesses have grown I was forced to invest in some real systems. I now run everything through QuickBooks Desktop Pro, the web based version would not work for me because each book has a separate subscription fee, so each property and business would cost like $30 each per month to keep a book. Desktop allows you to have unlimited separated books in one system, but it is only locally based which is a downside. Now my bank feeds and credit cards are auto pulled into my books so I can quickly categorize each income or expense in the system, its a few hours per quarter for me to keep my books, and some months I have hundreds or even thousands of receipts. I do not currently have a bookkeeper but I do have an assistant who I plan on training on bookkeeping next year to help take it off my plate. I still keep a physical copy of each receipt and file them in my file cabinets by property or business.   

All - keep it simple!

Scan EVERY receipt as a PDF - pics are okay if you are in a hurry, but they are too big and too hard to manipulate! You can print a pic to PDF pretty easily.

Regarding naming your files - 

@Andrew Freed your "Vendor_Purpose_Cost_Date" is okay, but you'll find in time the date is the most important data point, followed by the property address, etc.

We use this format: yyyy-mm-dd Main_E_123_#2 (vendor) Purpose $xx.xx (adjust address as necessary)

HIGHLY recommend that date format year first, then month, then day - makes finding/sorting so much easier!

Street name first, then street direction, then street number, then unit# is also an easier find/sort trick:)
(our brains process words faster than numbers)

@Brian G. I find that Xero is easier to use when you have a larger portfolio, it's less clunky to navigate. The reports are better and can be customized. You can set up bank feeds with most banks and import transactions automatically. You never want any system to automatically record your transactions, I've seen so many issues with that! However, you can set up a rule where it tells you automatically what a transaction probably is, and all you have to do is double-check that you agree and accept.

Originally posted by @Joseph Cornwell:

Now my bank feeds and credit cards are auto pulled into my books so I can quickly categorize each income or expense in the system, its a few hours per quarter for me to keep my books,  I still keep a physical copy of each receipt and file them in my file cabinets by property or business.   

Do you need to keep a physical copy, or can QB automatically gather that?

In the event of an audit with a system like this would the IRS request physical receipts, or would the itemization the system generates satisfy them? 

I don't know how you all are spending money that needs paper receipts. 99% of my expenditures are either ACH or CC autopay's to utilities, banks or other regular things, or paid by credit card to Lowes or HD who email receipts to my 'landlord' email with the PO (unit or property) I entered at checkout. Those get autosorted to a folder. I download the bank and CC statements to venerable and inexpensive old Quicken, which also prints the rare checks to contractors etc, where I categorize them and they're ready for a report to the accountant. I know where every dime went and never ever pay cash if I can help it. All my tenants are ACH deposits from Apartments.com, so income is all there too.  Contractor receipts go in a shoebox for the hopefully never audit.

I use Wave. It's free and works well enough for me. Syncs with bank accounts to upload all income and expenses, I just have to make sure that the categories are correct.

If you're a big time operator, it might not be enough, but up to 5 properties it should be fine.