Accurate record keeping for your rental properties is essential for any landlord.
Rule number one in record keeping is to keep all your paperwork and organise it so you can retrieve any documents easily when needed. If you have any disputes due to a misunderstanding about a property’s condition or you are required by the taxation office to verify a claim, you will need to call upon your records to do the explaining for you.
Record keeping is also a means to ensure that you are able to pay your outgoings when they are due. Managing your cash flow is crucial.
To keep things simple, the best method for property investors is to have two files for each property you own, an Annual file and a Permanent file.
An annual file should include documentation for the ongoing operation of a property. It should be based on the financial year, and kept for five years after you lodge your annual tax return. In Australia the financial year runs from 1 July to 30 June, whereas in New Zealand it is from 1 April to 31 March, but can be aligned with the Australian year.
Items to keep in your annual files include:
All invoices and receipts. Written receipts are essential, the Taxation Office might not accept a cheque butt as ample evidence of an expense. If you have costs for multiple properties on a single receipt, photocopy it and highlight the applicable item so you can include a copy with each property file.
You will also want to save your receipts and documentation for any expenses you incur for your rental properties. This might include replacement items, repairs and maintenance, new fixtures, cleaning and maybe even furniture. If you make phone calls to your rental manager or travel to inspect the property, you will also need to keep a record of these details. Land tax, insurances, water and council rates notices will also need to be kept.
What can you claim? Please check with your accountant regarding allowable rental property deductions. The taxation offices in Australia and New Zealand have several of articles of reference regarding Rental Properties.
Australian Taxation Office: http://www.ato.gov.au/content/downloads/IND00133187n17290608.pdf
New Zealand Inland Revenue (Te Tari Taake) http://www.ird.govt.nz/toii/property/information/
Rental statements. Whether you keep copies of tenant rent receipts or a quarterly statement from an agency, evidence of your income from a property is essential. Electronic banking makes record keeping easy, through either direct debit or electronic funds transfer (EFT). If you are using a computerised program to manage your rental properties, ensure you regularly back up your data and keep printed up hard copies as an extra safety measure.
Condition Report. Before a new tenant occupies the property a detailed condition report should be completed and signed by the new tenant. Always take photographs of your empty property before your new tenant moves in, and make notes of any damage on the condition report. Dated photos or videos can also prove invaluable if you ever need to substantiate damage caused by a tenant.
Tenancy agreements. It’s also a good idea to keep copies of each tenancy agreement in the annual file. Even If they’re not required for tax purposes, they’re still important records and should be kept for each tenant of each property. This particularly applies to commercial properties.
Cash book. You can use manual accounting systems, spreadsheets or accounting software, but you need to keep a record of your income and outgoings in relation to each property. This makes it simple to hand over the required information to your accountant to complete your financial statements. If you do not use a software program or computer to keep records for your property, you may want to consider giving it a try. You may also be able to deduct the cost of such software as a business expense.
Bank statements. Simple — just keep them all in one place. If some of your statements relate to more than one property you can either make a copy for each file and highlight the relevant items or keep just one copy in front of the rest of your annual property files.
The permanent file is to record the history of each particular property, from purchase to sale. It should be kept for five years after the tax return that records its sale has been lodged.
Documentation to keep in this file includes:
- Purchase contract
- Solicitor’s settlement letter on purchase
- Loan agreement, including any refinancing
- Depreciation schedule
- Renovation costs, details and totals
- Contract of sale
- Selling agent agreement
- Solicitor’s settlement letter on sale
- Loan finalisation documents
Tip: When you have multiple properties and therefore multiple folders, consider printing up a photo with address details for each property. If you insert this into the spine and front views of the folder, it makes it easy for identifying which folder belongs to which property.
Property Investment Analysis (PIA)
Property Investment Analysis (PIA) software helps you to analyse and forecast the capital growth, cash flows, and tax potential for an investment property. Some of the Key Features of the PIA software include:
- Data Entry Checklists
- Graphic Screens
- Property Investment Calculators
If you would like more information or to purchase your own copy of the Property Investment Analysis (PIA) please click here this is a great recording keeping tool.