Bookkeeping for first rental property

[Eric Lee]

Hi All,

I got my first rental property (SFH) under contract and am now working through the process towards closing. I'm excited about the opportunity, but want to make sure I'm prepared for everything that's about to come. I understand that organized/accurate bookkeeping will be a vital part of managing the property effectively, so I'm here seeking some advice.

When exactly in the process do I need to start tracking expenses?  If I haven't closed on the property yet, do I still need to track money spent on things like inspector/contractor costs during the due diligence process?  What about mileage traveling to the property?  Or do these kinds of expenses only become tax deductible and need to be tracked after the official closing?  Are there any other bookkeeping related things I should be keeping in mind at this point in the process not having closed yet?

These are some of my initial questions, guessing I'll probably have many more later, but appreciate any advice you all have.  Thanks!

Eric

[Lance Lvovsky]

Congrats on your first purchase!

For your first rental property, an excel spreadsheet will suffice. As you grow, you will want to use software, such as Quickbooks or Xero. Software becomes even more important when assets are in an entity, as your CPA will need to complete the balance sheet for the corresponding tax return.

Anyways, to answer your question, I do recommend you open a separate bank account. This account will have all activity related to the rental. All deposits will go in, and all expenses will be paid out from this account

You should track all expenses, even the ones during the due diligence process. Most of these expenses will be capitalized (consult with your CPA), but regardless, you want to track them. Also keep track of all mileage. 

The more accurate your records are, the better it will be not only for your CPA, but also for you. You will feel better about your rental when you are organized.

Don't hesitate to reach out with questions.