Monday, 30 July 2012

Investing in real estate: Essential record keeping

This post forms part of my investing in real estate series which has attempted to cover all aspects of buying your first investment property.  Up to this point we have focussed mainly on the initial aspect if investing, that of purchasing your property and getting tenants in the door.

This post however will focus on what you need to do and what records you need to keep once your property is running.

What should you keep?

As a basic rule of thumb I would keep everything: most of the paperwork you will receive you will probably need to keep.  This includes:
  • All receipts
  • All contracts and agreements including the rental agreement, the agreement you have with your agent etc
  • All correspondence no matter how trivial it may seem such as emails between you and the tenants and the real estate agent

Why is it important to keep all this documentation?

There are several reasons actually:
  1. Receipts need to be kept for tax purposes (the length of time you need to keep these varies between countries - in Australia you need to keep receipts for 7 years).  If you do not have all your receipts and get audited then you may be forced to pay a large amount in tax
  2. The contracts establish your legal rights and obligations.  If for any reason there is a dispute then these documents are your back up and evidence.  Keep in mind that you may also need to produce these I'd you ever want to evict your tenants.
  3. Correspondence also goes to the same point.  How do you prove that someone promised to do something if you have no evidence.  It is all about covering yourself in case the worst happens.

How should you keep the documentation?

A good organised system with sufficient back up in case of a disaster is the most important thing.  This includes at a minimum:
  • Having a dedicated file for your investment property paperwork
  • Having all electronic information sorted within a folder so that you both know where everything is and can retrieve it easily
  • Backing up all important documents so that should you ever lose your file or your house that you can still retrieve the information
  • Back up all electronic data.  Everyone's computer crashes and you do not want to lose everything
In this way no one event can cause you to lose your material and should you ever require it the information is easily accessible and available.

If you have any specific things you do in your record Jeeping process I would love to hear about it so please comment below.

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