When it comes to managing rental property, I’ve tried to take a simplified approach. I use two capabilities to track everything: an EXCEL spreadsheet that I’ve developed that I use to forecast how revenues and expenses are expected to flow, and Quicken which allows me to track what actually happens. This way, I know what has happened (Quicken) and I know what I expect to happen (EXCEL spreadsheet).
I will start with Quicken. I’ve been using Quicken since before it was in a Windows format to track all of my finances. It was only natural that I would also use Quicken for managing rental property. In figuring out what categories you will need, first look at a Schedule E of Form 1040. It is entitled "Supplemental Income and Loss", and will now become part of your annual tax filings. Generally speaking, you need no more detail than what is in this schedule, as these are the categories you will be reporting to the IRS. When you set up these categories in Quicken, it also allows you to link the data directly to Schedule E.
So for instance, I would set up cleaning and maintenance as "Rental Expense: Cleaning and Maintenance". Cleaning and Maintenance is a subcategory of Rental Expense. If I wanted to track my pool expenses, I would set it up as "Rental Expense: Cleaning and Maintenance: Pool". This will provide me detail of want part of cleaning and maintenance was due to the pool maintenance without breaking the link to the Schedule E. Now, how do you pull out only revenue and expenses related to your rental property? Quicken has something called a "class". A "class" allows you to group all of the revenue and expenses together for reporting purposes. Set up a "rental property" class. In the example above, the category for a pool expense would be "Rental Expense: Cleaning and Maintenance: Pool/Rental Property".
With this completed, you need use only two reports for managing rental property: The Cash Flow Report in the Banking section and the Balance Sheet in the Business Section. In the cash flow statement, make sure it is set to "income and expense", that all accounts are checked and that class is set to rental property. You can set the time period to be displayed either to monthly to see how you are doing or not at all, if you want to see a year to date report assuming that is how you set the date parameters.
The other report to use is the balance sheet report. This will show you how you are doing from an asset and liability perspective. Note: if you run the Cash Flow Report from the first month you owned the house, the Equity line on the Balance Sheet report should equal the Profit or Loss line on the Cash Flow report. This is a good way to make sure you’ve entered everything correctly.
The other tool I use in managing rental property is an EXCEL spreadsheet, where I have two sheets per year. One does the calculation on rentals by week so I know how much I should expect every month from the rental company. The next sheet takes the revenue projection by month, and on the expense side I project what expenses I expect to incur every month. This sound more complicated than it is. For instance, for telephone expense, I put the same monthly charge across all twelve months. This report reminds me when I will incur big charges, like insurance renewals, and so forth.
The last step is to take a monthly version of the Cash Flow Report from Quicken and add it into the EXCEL report so I have actuals in the completed months and can now push out expenses I thought I would have to pay in one month to the next month.
At the end of every year, you will get a 1099-MISC from the rental company listing your rental income for the year. Print out the Quicken Cash Flow Report to verify the number on the 1099-MISC. If there is a difference, it may be that there was a damage payment for your house this past year that the rental company collected from the offending renter. The rental company would have this detail for you. Increase the expense by this amount, as the net to you is zero.
At the end of the day, managing rental property is a preference in what makes you feel comfortable. Do what you need to do in oreder to minimize suprises as you move through the year.
You’ve bought your investment property, you’ve secured your investment property mortgage, you secured your investment property services network, and you’re set to begin managing rental property; now how about decorating the place to reflect you?