How to Set up Finances - First Property House Hack w/ in Law Ste

[Richard Yount]

Hello All,

Thank you in advance for the help.  I'm reaching out as I'm getting ready to make my first purchase of a property.  To give you the details on the property, it's a single family residence with two in law suites.  I would be staying in one of the suites, and rent out the main living area and the other suite.  Being that many of you have been around the block with this before, and I'm a rookie, I was hoping I could lean on you for some advice on best practices for setting up your finances for a rental property (or house hack with two tenant incomes).  A few questions that I have for you all:

1. Looking for addvice on how to manage and track expenses and income on the property through excel.  Both to keep my records straight so I can have a clear eye on things, and for tax purposes.

2. Where the income should physically deposited.  In my current personal account or in a new account set up specifically for this property?

3. What I should be doing with my reserves set aside monthly for repairs, cap ex, vacancy, etc?

Thanks again for the help everyone.  If you all of other tips or potential pitfalls that might be beneficial for me to consider up front, I'd be happy to take that advice as well.  I appreciate you all!  Hope everyone's having a great Friday!

[Chris Coleman]

@Laura Hines not sure if you got a response since the post you tapped was several years old. So I thought I would respond to hopefully help a bit.

For tax purposes, unless you have actually setup a separate business (e.g. LLC) through which you've done your investment property, then the IRS sees it all as your personal Income.

However, for your own personal bookkeeping and to make life easier, you definitely want to have a separate bank account for your investment-related property Income and Expenses. Deposit all of the Income from your investment in that account and pay out all of the Investment related expenses from that account. Do not mix your personal monies with it. This makes your Income/Expense accounting pretty easy when you only have one or a few properties.

For tracking expenses, the best thing I’ve done is to setup a spreadsheet that mirrors the IRS Tax Form Schedule E Part I. It’s simple and you can see a copy of it online. Just setup your expense categories in the same way as the IRS Schedule E Form Part I (Real Estate Rental) and simply track your expenses each month in those categories. Then each month and at the end of the year, you can easily see your Income vs Operating Expenses, and you have most of the info you need for tax purposes.

Hope this helps.