Whether you own one rental property or several, it's important to keep all the paperwork associated with the properties organized. You need easy access to leases and any addenda to them if tenant questions arise, and you should keep all rental applications in case a denied applicant makes a future claim against you. In addition, and perhaps most importantly, you can deduct expenses on your income tax only when you can prove them through your records. Paperwork needed for taxes is the most challenging to keep organized because there is so much of it.
What You Should Keep
Always keep a copy of the lease, any addenda to the lease and all rental applications from prospective tenants in a safe place. A good idea is to create a file for each rental property. Keep the files in a filing cabinet. You also need proof regarding whether you made or lost money on the rental property each year and how much. You do that by listing your rental income and subtracting the expenses. Canceled checks, bank statements that show direct deposit or receipts you write if you accept cash all prove rental income. Your receipts from anything you spend on the house for repairs, insurance, taxes and anything else, such as termite and trash service, serve as proof of your expenses. You need to keep separate income and expense records for each rental property you own.
There's nothing wrong with keeping records the old-fashioned way by writing down your income and expenses in a notebook or ledger and keeping the income paperwork and expense receipts in a storage box or in a compartment in your notebook. This method is acceptable to the Internal Revenue Service, according to legal advice website Nolo. It's a good idea to note on the receipt what it was for if this information isn't already on the receipt. The paper method can be the simplest way of keeping records, especially if that's how you've always done things. Simply list an income column and an expense column for each month to see how you fare at the end of the year. Divide expenses you might pay once a year, such as property tax, by 12 to get a true monthly account.
Many computer software programs are available to help with your record-keeping. Spreadsheet software, such as Microsoft Excel, Lotus 1-2-3 and Ability Office, can keep track of your income and expenses. You would create a separate spreadsheet for each rental property. But you would still need to keep paper copies of your income and expense receipts in case the IRS audits you. The other options for keeping receipts are to use an Internet storage service that you can upload your receipts to, such as Shoeboxed, or to use an at-home version, such as NeatReceipts, to keep digital receipts at your home. Once a month, look at your income and expense receipts, and enter the data on the spreadsheet.
Property Management Software
Landlords also can use property management software to keep rental property paperwork organized. Quicken, for example, has software that organizes all the paperwork for you. It also helps find all your tax deductions, gives you a place to record late fees or partial payments and lets you compare the statuses of your rental properties. Property management software typically has many advanced features that landlords with one or two properties might not need. Landlords with more than 10 properties often find them useful, according to Nolo.