How do you track your expenses? Looking for best practices

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How do you track your expenses? Looking for best practices

Andrew FreedBusiness Member
Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes

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? 

[email protected]781-964-3200Podcast Guest on Show 69 Doors from ONE Real Estate Deal Using Other People’s Money
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Account Closed
Accountant · San Angelo, TX · Member since 2021 · 48 posts · 80 votes
4y

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.

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  • Bud Gaffney
    Rental Property Investor · Boston, MA · Member since 2019 · 2k+ posts · 1k+ votes
    4y

    Following..

    2Reply
  • Dennis Gavilanes
    Investor · Chicago, IL · Member since 2013 · 26 posts · 8 votes
    4y

    Wow it looks like you have down to a science, how many properties are you referring to just curious

    1Reply
  • Account Closed
    Accountant · San Angelo, TX · Member since 2021 · 48 posts · 80 votes
    4y

    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.

    6Reply
  • John UnderwoodPro Member
    Investor · Greer, SC · Member since 2014 · 13k+ posts · 17k+ votes
    4y

    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. 

    4Reply
  • Andrew FreedBusiness Member
    OP
    Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    @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. 

    @Account Closed - 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. 

    [email protected]781-964-3200Podcast Guest on Show 69 Doors from ONE Real Estate Deal Using Other People’s Money
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  • Account Closed
    Accountant · San Angelo, TX · Member since 2021 · 48 posts · 80 votes
    4y

    @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.

    3Reply
  • Andrew FreedBusiness Member
    OP
    Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    @Account Closed - Much appreciated, I'll check out Xero. 

    [email protected]781-964-3200Podcast Guest on Show 69 Doors from ONE Real Estate Deal Using Other People’s Money
    1Reply
  • Austin F.
    Investor · MI · Member since 2015 · 227 posts · 478 votes
    4y

    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.

    1Reply
  • Allen L.
    Rental Property Investor · Chicago and mainly invests in KS remotely · Member since 2018 · 360 posts · 314 votes
    4y

    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...

    1Reply
  • Peter Koch
    San Francisco, CA · Member since 2019 · 13 posts · 4 votes
    4y

    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. 

    1Reply
  • Todd Lennig
    Accountant · NY · Member since 2019 · 99 posts · 69 votes
    4y

    @Austin F.. 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. @Account Closed 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.

    3Reply
  • Account Closed
    Accountant · San Angelo, TX · Member since 2021 · 48 posts · 80 votes
    4y

    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!

    0Reply
  • Rumen Mladenov
    Investor · Newark, DE · Member since 2014 · 245 posts · 198 votes
    4y

    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. 

    0Reply
  • Brian G.
    Rental Property Investor · Los Angeles, CA · Member since 2013 · 1k+ posts · 1k+ votes
    4y

    @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?

    0Reply
  • Joseph Cornwell
    Real Estate Agent · Cincinnati, OH · Member since 2015 · 474 posts · 580 votes
    4y

    @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.   

    2Reply
  • Mo P.
    Rental Property Investor · Oahu, HI · Member since 2017 · 12 posts · 11 votes
    4y

    @Andrew Freed

    I am very happy using ReiHub for bookkeeping for the past 2 years. Much easier than Quickbook.

    2Reply
  • Darren Looker
    Investor · Dallas, TX · Member since 2013 · 64 posts · 47 votes
    4y

    @Andrew Freed

    Great discussion topic. Following.

    1Reply
  • Drew SygitBusiness Member
    Property Manager · Royal Oak, MI · Member since 2012 · 12k+ posts · 9k+ votes
    4y

    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)

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  • Account Closed
    Accountant · San Angelo, TX · Member since 2021 · 48 posts · 80 votes
    4y

    @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.

    1Reply
  • Austin F.
    Investor · MI · Member since 2015 · 227 posts · 478 votes
    4y
    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? 

    0Reply
  • Johann Jells
    Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
    4y

    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.

    0Reply
  • Bruce WoodruffPro Member
    Contractor/Investor/Consultant · San Diego / Phoenix · Member since 2021 · 12k+ posts · 15k+ votes
    4y

    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.

    0Reply
  • Johann Jells
    Rental Property Investor · Jersey City, NJ · Member since 2011 · 1k+ posts · 876 votes
    4y
    Originally posted by @Bruce Woodruff:

    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.

     I was excited to hear of what sounded like a good alternative to Quicken, which has not been maintained well recently. But screwing around with it is not encouraging. Just the fact that they call both banking/credit accounts and categories "accounts" is absurdly and unnecessarily confusing. Not looking good, but I'll keep playing. One thing that has me there is that they say they'll import Quicken data. I was reluctant to move to any app that didn't let me migrate my decades of data. Often Quicken is the easiest way to remember what contractor did the roof on 2004 or such.

    0Reply
  • Andrew FreedBusiness Member
    OP
    Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    @Drew Sygit - Great feedback, much appreciated! 

    [email protected]781-964-3200Podcast Guest on Show 69 Doors from ONE Real Estate Deal Using Other People’s Money
    0Reply
  • Andrew FreedBusiness Member
    OP
    Investor · Worcester, MA · Member since 2020 · 1k+ posts · 1k+ votes
    4y

    @Bud Gaffney, @Dennis Gavilanes, @Account Closed  - I appreciate the feedback. I put the SOP is a nice easy to read format. Feel free to use it if you want. Thanks again for the input all. 

    [email protected]781-964-3200Podcast Guest on Show 69 Doors from ONE Real Estate Deal Using Other People’s Money
    3Reply
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