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Keeping good financial records

I’m always astounded at how many investors don’t keep detailed records on their properties. Especially since most of this data is submitted to the IRS at tax time. For some reason or another, after the data has served it’s initial us, the information often gets tossed aside. If your records look like this picture or if they end up in the trash can, I encourage you to think twice about what you do. You are losing out on valuable information, which is crucial to any landlord’s business.

Consider, for a moment, the following benefits of keeping good financial records:

  • Proof for the IRS – If the tax man should come knocking, you have convenient proof of your income and expenses. Since you should be keeping financial records for at least three years anyway, this should be a no-brainier.
  • Proof for selling or a refi – If you ever decide to sell or refinance a property, detailed financials can be a godsend. Rather than handing a prospective buyer or banker a current income and expense report, you’ll be able to show them reports from the last several years. If you have been making improvements to your property and raising rents (you should be), the progress made through the years will prove quite convincing. I can’t tell you how many deals I come across where owners claim totally unsubstantiated numbers, which my buyer and I both assume are bogus. By keeping detailed records you can provide the evidence to support the highest value possible for your properties.
  • Proof for yourself – Being a landlord is kind of like running a business. And in any business, the bottom line should always be known. If you are losing money you need to figure out why and remedy the situation. If you are making money you need to figure out why so you can keep it up. So many investors waste their income potential by not paying attention to this important factor. I cite the gross amount of foreclosures of investment properties on the market as evidence of this ignorance. But if you keep detailed records, you can track these numbers over the long and short-term. Perhaps this data could provide you with the insight to make significant increases in your profits, but you’ll never know if you don’t try.
  • Proof for the next project – If you use your records to determine where you have gone wrong in the past, you’ll be much better at picking the right situations in the future. These records can also be used as proof when getting future loans. If you can show the bank records of how successful you have been at turning buildings profitable, it will increase your clout. Better relationships help you to get better rates and terms, which in turn make your investments more profitable.

So there you have it. Four solid reasons to keep good financial records on your properties. Whether your a paper or computer person there is no excuse for not doing this. Even if you’ve owned a property for years and have neglected this duty to yourself up until now, it’s never to late to start.

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