Are you struggling to organize your real estate documents? What comes to mind when you think of real estate investing? I’ll give you a moment to think about it. Done?
Was it taxes? I doubt it.
One of the benefits of real estate investing are the tax benefits. For example, all repair expenses are tax-deductible, which can lower your taxable income. Also, you can avoid paying tax on the profit when you a sell a property. Sexy, right?
Whether you’re signing mortgage documents or collecting invoices from contractors, those real estate documents have to go somewhere.
What I TRIED To Organize
For me, I first started to keep receipts in an accordion folder. That did not work.
The receipts started becoming a ball of paper held together by a paper clip. I’m still a little disappointed that I didn’t win anything after filling out all those surveys on the bottom of the receipt.
Those receipts and documents had to go somewhere. But, I didn’t know where. I tried searching online for a solution or a practice from other investors. Unfortunately, I couldn’t find anything that appealed to me.
Real estate is a business and not a hobby. By the time it was tax season, I want to well organized. I wanted to build a system where I simply file documents for the appropriate tax year.
How I Organize NOW
Each property will have a binder. These binders are referred to as the primary binders. Therefore, if I have three properties, then I should have three primary binders.
The primary binder contains the following dividers:
– Inspection Report
– Rehab Estimates
Next, we have binders for each year for each property, which are referred to as the yearly binders. As a result, these yearly binders can be used specifically when preparing for taxes.
In the example below, if I have three properties and wanted to look at the tax years for 2015, 2016, and 2017, then I would have nine yearly binders total.
A – Yearly Binder 2015, Yearly Binder 2016, and Yearly binder 2017The above refers to three separate properties Property A
B – Yearly Binder 2015, Yearly Binder 2016, and Yearly binder 2017
C – Yearly Binder 2015, Yearly Binder 2016, and Yearly binder 2017
The yearly binder contains the following dividers:
– Utility Bills
– Property Management
– Bank Statements
– Rehab Expenses/Invoices
– Property Tax
– Loan documents (if applicable)
Two dividers that require a little more explanation are the Loan Documents and Overview dividers. The Loan Documents divider is for any loan documents if a property was financed for that year.
The Overview divider is for the overall Rental Income/Expense breakdown for the year. The Rental Income/Expense report breaks down Each expense is separated into different categories, such as repairs, management fees, interest/mortgages, etc.
I place this breakdown in the front of the yearly binder for the my Certified Public Accountant. If you would like a copy of a Rental Income/Expense worksheet you can download one below:
Real estate investing is a business and should not be treated like a hobby. Therefore, you need to properly organize all your documents. Create a system early in your investing career and avoid the stress!
Make it a point to file your documents within the next seven days upon receipt. You can save yourself trouble by not waiting a month to organize your documents.
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