There are many important ingredients for success in a rental property management strategy. You’ll need to find the right neighborhoods, purchase the right properties, find the right tenants, and keep a tight leash on your expenses if you want to make a consistent profit.
In addition to all that, you’ll need to turn yourself into a thorough archivist, documenting almost everything related to your property. Why are documentation so important, and what steps can you take to make it easier on you?
The Role of Documentation
Let’s take a look at some of the ways that thorough documentation can help you as a property manager.
- Mitigation of legal issues. Keeping thorough documents allows you to mitigate potential legal issues in the future. For example, let’s say your tenant is planning on suing you for evicting them illegally. If you have thorough records that show that you’ve followed all the necessary steps to evict the tenant, and you have evidence that the tenant clearly violated your lease agreement many times, you should have no problem winning this case. If you don’t have any documentation, it’s basically your word against theirs, which means you won’t have much protection.
- Tax planning. You’re going to owe taxes on the money you make through real estate investing. But how much money are you going to owe? And would you be able to prove your calculations if you ever get audited? Keeping solid financial documents is indispensable if you want to make tax planning easier, more straightforward, and less likely to raise issues in the future.
- Profitability analysis. Your documents are also valuable for helping you calculate the return on investment (ROI) of each of your properties. Month by month, you can look at all the expenses your properties have incurred, all the income they’ve generated, and your overall profitability. From there, you can make decisions about which properties to sell, which properties to upgrade, and which neighborhoods you should scout for more purchasing opportunities.
- Peace of mind. Keeping more thorough documentation also gives you more peace of mind. You can rest assured that you’ve financially and legally protected yourself as much as possible.
What Should You Document?
What forms of documentation should you be pursuing?
- Rental applications. Keep rental applications on file, even for tenants who you rejected. These can be useful if you need to check any information your tenant has provided you in the past. They’re also useful if you’re ever accused of discrimination, so you can produce a paper trail and provide your reasoning for rejecting an applicant.
- Disclosures. It’s also important to keep track of certain disclosures that you make, to mitigate legal risk.
- Lease agreements. Keep copies of all your signed lease agreements on file. If there’s ever an issue raised by your tenant, you can check the lease agreement to see exactly what it says. If you ever get into a legal dispute with a tenant, you can use this as a solid anchor document to build your case.
- Rent payments. Document when and how your tenants pay rent. Are they making rent payments on time? Are they paying in full? Where is the money coming from? If you ever run into any rent collection issues, you can identify the discrepancies.
- Mortgage and property tax expenses. You’ll also need to keep track of what you pay to maintain the property. If you have a mortgage on the property, keep track of what you pay on it. If you have property taxes, keep track of those as well.
- Maintenance and repair expenses. It’s a good idea to keep track of all your maintenance and repair expenses as well. If you upgrade or update the property, keep tabs on what you buy. If you respond to emergency repair requests, note how much you spent to fix the problem. And keep thorough records of all the maintenance you perform at the property.
- Other expenses. Don’t forget about other expenses related to your property – even minor ones. For example, how much money did you spend traveling to and from the property? How much did you spend on insurance?
- Communications. If you have ongoing communications with your tenants, keep track of those conversations however you can. That might include keeping copies of emails or text messages, or even recording phone calls (with proper notice). This way, a tenant won’t be able to dispute things they’ve said in the past or things you’ve told them.
- Official notices. If you’re trying to evict a tenant, or if you need to take legal action against a tenant, you may need to provide them with official notices via mail or in person. Make sure you can prove that these notices were served.
Improving Your Approach to Rental Property Documentation
What steps can you take to improve your approach to rental property documentation?
- Hire a property manager. The best thing you can do is hire a property manager. With a property management company working on your behalf, all your documentation should be neatly organized and consolidated if you ever need it in the future. These days, most property managers give you access to an online portal, where you can access any of the documents you need at any time.
- Use automated software. If you choose not to work with a property manager, you can save yourself many headaches by using automated software. With the right software platform, you can automate rent collection, some aspects of tenant screening, and even property maintenance. All records will be kept within the platform, so you can generate reports and access them whenever you need.
- Create a thorough system of organization. Make sure you create your own system of organization, so you can find what you’re looking for quickly. Keep all your documents sorted by date, by type, by location, and by other factors.
- Make backups. Always create backups for all your documents. Save your files independently in multiple different locations, so you never have to worry about losing them.
Are you feeling overwhelmed by the documentation you need for your rental property? You don’t have to go it alone. With a competent property manager, you can turn your rental property into a truly passive income source – so you can focus on more important things. Contact us to learn more about our approach today!