BOUGHT MY FIRST RENTAL!!!!!! Now Bookkeeping???!!!???

Question

So I bought my first rental in Kalamazoo, MI. It's a SFR which I will be living in one room and subleasing the rest of the rooms. Tenants/roommates will be paying my mortgage and I will still have an extra $200 left over for other expenses. My main question is how to do the bookkeeping for this property? I am very confused about tracking expenses and organizing it all since I can't completely separate my personal expenses from the rental expenses. Any help will be greatly appreciated. Thanks!!!!

Natalie Kolodij · Answer

I would talk with your accountant now

Work with them to establish the business/personal use of the property now...so that as your tracking through the year the numbers are fairly well reflective to what you'll see at tax time.

Then I would honestly use Excel.

I would have a column for expenses directly related to rental portion, and one for related to the whole house. The one related to the whole house would then split out based on a % of business/personal use.

Example:

Directly related- Replaced carpet in 1 of the rented rooms : $500

Indirectly/whole house- RE Taxes $6,000 but only $3,500 is business related based on the allocation.

It will help you track things more clearly and you'll be ahead of the ball come tax time.

Also- Agree that using one bank account or credit card will also make things more clear/easier.

Jill F. · Answer

I would recommend Buildium; It is working very well for us. When we looked for online rent payment, it was the only one that also provided an accounting system. For one property it is $10/month and it has a pretty full featured accounting system, an online app, background checks for $15, and online rent payments for .50.  And Buildium scales- we are now up to 21 units with 12 more on the way. My biggest pet peeve is the the way you have to deal with balances on a credit card.

David Edwards · Answer

Credit card (or debit) for a self generating paper trail. Also points, miles or whatever they come with. Cash doesn't have any of those.

Excel might get you where you need to be but quicken wood be considered a business expense and its probably easier to learn how to use it when you are working with smaller numbers. Its also under $100 so I wouldn't think this is something you couldn't make up for pretty quickly. No sense in pinching pennies on something that will make your life much easier moving forward.

Travis Rasmussen · Answer

Get a good tax guy immediately.

I can't recommend them enough, but go to your local REI and find out who they use. Best to always get one early.

Lesley Resnick · Answer

I would not spend the money or take the time to learn a new system.  An xls would track your income.  You would only have 12 entries a year and most of them should be the same.

You should only have a few expenses a year.  Expenses, use a separate credit card or savings account.

Property tax and mortgage interest are reported to you for tax purposes, by the state and mort co.

Where it gets ugly, I am not an accountant, is the depreciation.  You can only depreciate the amount of the house you do not live in or use.  When you sell, the depreciation will need to recapture for the tenant portion.

Dan V. · Answer

I agree with separating accounts for rental and personal. If you have second bank account and credit card account, if not, open new accounts, and use them exclusively for rental transactions. It will be difficult in the beginning but once you set up a system (ie deposit rents on a separate bank account, set up autopay on bills from the same account or separate credit card, etc) should be easier since most transactions are re-occurring. Doing so will also make your life easier once you decided to pull your numbers since you will just have to download the transactions from your bank/cc accounts, without having to go thru them and determine which is personal or rental. Good luck on your investment!

Jack McTavish · Answer

Great advice across the board here. All I could recommend on top of this is to use an app like Mint to track personal accounts. It has helped me in the past.

Johann Jells · Answer

I don't understand how you implement that separation on the form E. They ask what was spent on the whole property in each category of expense, and then apply the %.

BOUGHT MY FIRST RENTAL!!!!!! Now Bookkeeping???!!!???

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