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Landlording Income & Expenses: track them like you run a business!!

     The longer I own rental properties (about 8 years now), the more fellow landlords I have the pleasure to meet and converse with on the pains (many) and pleasures (few) of this great, wonderful and often frustrating  business.  One area that seems to separate successful landlords from unsuccessful ones is in their ability to get a handle on how profitable (or not) their business is running.

     Tracking the income and expenses of your various rental properties, both separately as well as in aggregate, is a very important part of landlording. Many landlords I know simply use the “box” method and accumulate rent receipts and property expenses all year long and then sort things out around tax time. Unfortunately, if you have several units or more, how do you easily track which tenants pay, which are late and how your expenses may be eating into your profits? Looking at the financial aspect of your business only once a year just isn’t sufficient.

     So, what is the best method to track the profitability and cash flow of your business? We’ll if you have only only one or two units, you may just want to create a basic spreadsheet. You can easily do this by setting up a simple one that tracks rents and other income in and property related expenses (mortgage, taxes, insurance, repairs, maintenance, etc.)  going out. Add up the columns at the end, include a section for “notes” and there you have a simple, but effective method to track you rental properties all year long. I have created a VERY simple spreadsheet that you might find useful. You could easily create something like this on your own… however, since I still have people asking me if they are missing anything, I have made this one available for under $8. You can use it over and over, year after year, and modify it to meet your needs:

     However, if you are looking for the next level, you have several units, or you want to look at your rental property business finances from several different angles, then you need something more sophisticated. My personal choice for the past couple of years has been QuickBooks Pro. Once you get past the small learning curve, it is an excellent way to enter and track income and expenses. It also allows you to automate some of the tasks that you do, like automatically emailing or printing rental and contractor invoices, financial and accounting statements and a whole hose of other reports.

If you decide to go the QuickBooks Pro route, there are several books out there tailored to showing landlords how to set it up specifically to track rental properties. If there is enough interest, I can do future posts on these books, as well as, property management software that interfaces with QuickBooks. Also, you can search the Landlord Business Insider for past posts on accounting and QuickBooks topics.

     Whether you choose to utilize a spreadsheet, QuickBooks, or any other program, the important thing is that you treat landlording like a business and keep track of your business carefully. Once you own properties, quickly realize that it is not a game of monopoly… it is a small business that can help make or break your financial future!

-Steve Boorstein

Author/Landlord

LandlordBusinessInsider.com

HowToBuyRentalProperty.com

ManageRentalProperty.com

Landlord Attorney Corner: Using LLCs and SubS Corps

     “Many people today are complaining about the bad economy. However, there are always opportunities for the astute investor. For instance, depressed real estate prices have placed many attractive properties on the market that might not have been there, but for the current economic circumstances.

     Some people are afraid to get involved in real estate investment. “What would happen if someone sues me?” they might say. “I don’t want to lose my home!” Creation of a Subchapter S Corporation or a Limited Liability Company is essential to guard against these possibilities.

     These are business entities that can be created by an individual to own and operate the investment property. There are substantial financial advantages to owning property in this manner and it protects your individual assets, if that “worst case scenario” occurs. Because the Internal Revenue Code allows for the pass-through of the profits, losses and expenses, the tax consequences are no different than that which would have occurred had the property been owned by the individual. On the other hand, the individual owners of the Sub-S Corporation or the LLC cannot be held individually liable for the debts or obligations, unless they have personally guaranteed same.

     As with any major challenge, it is always important to consult with your legal and accounting expert. This is an area that has intricacies that require advice. However, with a little bit of knowledge, you can gain substantial benefits and financial security.”

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The above general information has been provided by Robert A. Gleaner, Esquire, an attorney licensed to practice in New Jersey and Pennsylvania. However, no one can rely on advice from an attorney who has not been retained. In order to be able to rely upon any advice, you need to meet with and retain an attorney, who will be able to give you advice after a full and comprehensive interview. Before you do anything, you should contact an attorney for a full consultation. Feel free to contact Rob at http://www.ragpc.com/.

(Editors note: Business structures such as an LLC or SubS Corp can provide significant protection for real estate investors, but only if used correctly. It is important to retain an attorney to understand the proper way of utilizing an LLC or SubS Corp. If not used correctly, they may not be providing the protection you expect. Also, it is important to consult a qualified accountant or tax attorney on the tax consequences of LLCs and SubS Corps. For example, multiple member LLCs may require a separate tax return and/or K-1, while individual member LLCs may not. Tax laws vary by state and we strongly suggest that proper qualified professionals be consulted when making complex and strategic decisions, such as asset protection. Landlord Business Insider does not provide tax or legal advice!)

Landlord Attorney Corner: Separating Tenant Security Deposits from Landlord General Account

I recently received this question resulting from my article “NJ Landlords: Remember the Security Deposit Interest Deadline” :

“I deposited a security to my own account instead of an escrow account. I know under such conditions the tenant could ask that their security be used as rent. However, they have to let me know in writing AND give me 30 days to either give them their interest or notify them of where their security deposit is or both. Could I, within these 30 days, immediately open an escrow account, therefore invalidating their request to use the security deposit towards their rent.”

To answer this question with legal competence, I asked attorney Rob Gleaner, Esq. to help us with an answer. Here is Rob’s response:

“You are correct that New Jersey law requires a separate escrow account. I would suggest that you immediately open one. You will need your tenant to sign a W-9 form (available on the IRS web site) and also provide you with a copy of his drivers license. Both of these are required by banks. If you only have one tenant, a passbook or similar account would be fine. If you have several, some banks offer a “lump sum” account that divides up all of the money, tenant by tenant. You would want to talk with your banking representative to determine which is best for you. However, you should get this done immediately.

Keep in mind that this information is given based on the facts that you have provided. And no one can rely on advice from an attorney who has not been retained. In order to be able to rely upon any advice, you need to meet with and retain an attorney who is experienced in Landlord/Tenant law, who will be able to give you advice after a full and comprehensive interview. Before you do anything, you should contact an attorney for a full consultation. Good Luck! Rob Gleaner”
(Editor’s note: Robert Gleaner, Esq. can be reached at http://www.ragpc.com/ )

Regards,
Steven A. Boorstein
Landlord/Author
www.LandlordBusinessInsider.com
www.ManageRentalProperty.com
www.HowToBuyRentalProperty.com

HUD Fair Market Rents for 2010 – How current are your rental rates?

This is the link to the 2010 HUD Fair Market Rents

If you want to see FMR data for previous years, as well as the HUD FMR Overview, you can find it at HUD’s site
here.

That’s just one great tool that smart landlords can use to keep their rents current!

Regards,

Steven Boorstein

Author/Landlord

Landlord Business Insider – The Way SMART Landlords Do It!