Being the owner of residential rental property means being in business. It is axiomatic that a crucial part of operating a successful business is the keeping of accurate, timely records. New landlords will find that creating a paper trail of all their transactions and activities with regard to their properties is one of the most effective property management tools at their disposal.
Benefits of Recordkeeping for Landlords
There are several reasons why landlords should maintain accurate, complete, and contemporaneous records. Among other things, good business records:
- allow property owners to evaluate whether their rental property is meeting the goals of their real estate investment plans
- help support the owner’s position when conflicts arise with tenants, government authorities, and others
- help verify claims made by the owner on tax returns, loan applications, and other important documents
All the paperwork involved – such as keeping copies of written tenant leases, retaining receipts for supplies and services for the property, issuing notices to tenants in writing, and saving copies of all correspondence with tenants, government officials, and others – may seem tedious. However, a paper trail is a potent means of self-protection for landlords. A well-organized paper trail helps the landlord anticipate problems and nip conflicts in the bud before they get out of hand.
Types of Records Landlords Should Keep
These are the main categories of essential records that landlords should keep handy and up-to-date:
- Tax-related records. These include dfw real estate tax, water, and sewer payments; bookkeeping (expenses and payments by month).
- Property maintenance. This include repairs/renovations and asset/fixture purchases –including what, when, and how much was paid; list of contractors or repairmen used.
- Tenant matters. These include leases; property rules; notices/letters to tenants; tenant applications; photos of the condition of units, before and after rental.
- Legal/regulatory compliance. This includes government licensing fee payments; correspondence with government authorities; copies of inspections reports by government authorities.
Good Records Help Real Estate ROI, Tax Calculation
Recordkeeping is an indispensable part of being a landlord. Having complete, accurate records enables a property owner to determine whether return on investment (ROI) goals set are being met, where deficiencies in those goals lie, and how these can be corrected. Good records also allow the landlord to comply with applicable government regulations and calculate federal and state taxes more precisely.
Finally, by creating a readily accessible, complete, written record of the actions taken with regard to rental property, landlords can prove they have followed the letter of the law and thus defend themselves from baseless or inaccurate claims by tenants, government authorities, and others.