Wednesday, July 26, 2017

The Landlord Files: A Financial Life of it's Own

As you might recall, my partner and I have a rental property in Portland, Oregon.  It's been almost three years since we "placed it into service" as a rental, and I have to say that this rental has been a really great financial move for us.  That being said, it could have been a real disaster in terms of financial organization.

In addition to your regular bills: mortgage/rent, utilities, etc., you'll find an entire additional set of expenses that need to be tracked.  Your rental property will likely have it's own mortgage (unless you bought it outright), taxes, insurance, maintenance, and certain utilities that you'll still be responsible for paying.  Sounds like a tracking nightmare, right?  Well, it doesn't have to be...

I have a completely separate account for the financial life of my rental property. That's right, your rental property has pretty much developed a life of it's own, so it really needs an account of it's own.  I opened a separate savings and checking at the same institution that holds the mortgage for my rental property.  I also set up online banking and a direct deposit into that account.

Every month, my property management company direct deposits my rental income into the rental
checking account. From there I set up an automatic transfers to the mortgage payment.  That way, no matter how crazy my world gets, I know the payment will occur on time.

The next thing I do to keep this all organized is to log in once each month.  First I check that the payment was made.  Then I transfer a portion of what remains into the savings account.  That savings account is for "Rental Emergency Fund/Maintenance Needs."  Just like your regular financial life has emergency needs and maintenance needs, so does your rental.

In many ways I've personified my rental property.  It's got a financial life of it's own, and I've done my best to set it up to be financially independent.  It earns it's own paycheck, has it's own direct deposit, has it's own emergency savings, and occasionally has it's own emergencies.  I personally, don't use any of the money from the house's account for my own world if I feel that it's savings account is underfunded.

Another area of "financial organization" that you need to be mindful of, is taxes.  Your tax professional will be able to help you with the specifics, but being organized from the start is key.  Every dollar that is spend with regards to the house is going to impact a certain part of your return.  So, I personally only pay for things involving the house out of the house account, or via my management company.  That way, at the end of the tax year, all of those expenses are easy to locate.  They are either on the house's bank statement, or the statement that the management company sends.

By keeping a completely separate account for your rental property, you will save yourself a lot of work organizing later!

For further reading with regards to rental properties, please check out the following:

The Landlord Files: Location is Key
The Landlord Files: How do I know if this house will get a good return?

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