http://www.articletrader.com/ Articles at ArticleTrader en-us http://www.articletrader.com/finance/real-estate/should-you-invest-in-overseas-real-estate.html http://www.articletrader.com/finance/real-estate/should-you-invest-in-overseas-real-estate.html Wed, 21 Nov 2007 00:00:00 -0600
Proposition One: Invest in spectacular real estate in an exotic location like Bulgaria, Malaysia or even a condo on a cruise ship.

Proposition Two: Put your money into a rental property investment far from your home, in a country where you don't speak the language, don't know anything about the laws or the government, and can only get to with two days of travel at a cost of more than $1,000.

The first proposition sounds a lot better, doesn't it? But these are actually just two different ways of looking at the same deal. Sales pitches for overseas property investments focus on the "heart" aspects of the proposed deal - the glamour and status of owning property in a place your friends have never even heard of, much less ever visited. The "head" aspects, which go much further to determining if you will recover the cost of your original investment, or earn a tidy profit, aren't mentioned.

On a purely rational basis, investing in your own country usually makes much more sense than investing overseas. Overseas investments only make sense in certain very special cases, for a small percentage of investors that meet certain qualifications (which I'll describe later).

I am writing from the perspective of an American investor, so if you don't live in the United States, the same conditions apply - but in reverse. I think American investors usually should invest in the United States, for common-sense reasons. On the other hand, if you live in Europe, a Bulgarian investment probably makes much more sense than investing anywhere in the United States. It will certainly be less risky on every level.

(I am also not singling out any particular overseas area as bad for investment. I picked these examples at random, but they are all heavily promoted for property investment.)

The added risks in overseas investing come because you must rely much more on the honesty of both the property seller, and the property manager. (For most overseas investments that are promoted heavily in the US, the seller and property manager are partners, or even the same company.)

Consider: your first job in evaluating a deal is to look at the area surrounding the property. If you are buying year-round rental property, you want the area to show strong job growth, because job growth is the single biggest indicator in predicting future growth in real estate values. If you are buying vacation property, you want a relatively undeveloped area that is becoming "hot", with a stable local and national government, good travel options, and very good weather.

If the potential deal is in your country, you have options to make an independent review. You can find stories about the area in local and national media, read up on the local government, and even call local experts. You can even look up complaints and comments about the seller and property manager.

With an overseas investment, you may not be able to find newspapers and web sites that cover the area and report in your language. And good luck calling a local official or expert for information!

Long-distance property investors should always visit the areas where they are investing. There should be at least one visit before the first deal is made, and another visit every six months to a year afterwards to make sure the property is being managed and maintained properly. Just the travel costs of these visits make many overseas investments financially unworkable.

Consider that you can get from one corner to the other of the US for less than $400 at almost any time of the year. On the other hand, going from Boston to Kuala Lumpur, Malaysia, costs $2,300 - minimum. And the cheapest flights take nearly 42 hours each way.

Faced with these added costs to the bottom line, many overseas investors simply choose not to visit their investments, before or after making the deal. Once again, they must rely on the honesty of the seller and the property manager.

Even if the seller and property manager are honest, overseas investors may run into huge problems because of legal and accounting issues. Investors often shy away from certain cities in the US because they have ridiculously biased landlord-tenant laws. They simply don't know which overseas locations have the same laws or worse.

There are some cases when overseas property investments make sense. If you have a special connection with an overseas area, you will be much more likely to make a smart investment. That is, if you are from a certain region or country, or have other reasons to visit there frequently, you'll know the area far better than other potential investors will. You probably speak the language and have friends who can answer your questions, or even visit your property in your absence.

In addition, because you are visiting the area regularly anyway, the travel costs of going there won't be a "real expense" associated with the property investment. You may well decide to record that expense against the income from the investment, but you were planning to go to Bulgaria or Malaysia or Costa Rica anyway.

Even if you don't have this local connection, there is another potentially good reason to make that overseas investment. It's important to remember that many foreign countries are showing remarkable economic growth, much higher than the United States. For that reason, an overseas investment in one of those countries may promise annual returns in profit plus increased equity that are far better than you'll get in most American cities.

That means that if you are the kind of investor who doesn't mind taking a lot of risk for potentially a lot of reward, an overseas investment may work well. Or, here's another way to look at it - why not use some of that extra money to mitigate some of the extra risk? Suppose an overseas investment promises you $15,000 per year in positive cash flow, against an up-front investment of $100,000. Spend $5,000 of that money doing extra due diligence to make sure the property deal works well, and will continue to perform well. Make another trip, find another expert, and do some additional research. You'll still get a 10% return, but with far less chance of losing money.

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Brendan is the developer of Property Master property management software. Our rental property software runs on any Web-connected computer with full accounting, alerts, nearly 50 reports, and many other great features. http://www.pcpropertymaster.com.

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/real-estate/property-management-software-what-to-look-for.html http://www.articletrader.com/finance/real-estate/property-management-software-what-to-look-for.html Mon, 12 Nov 2007 00:00:00 -0600
You need a really flexible rental property program because, as a property manager, you never know what tomorrow may bring. You might need to get details about a property or tenant at home, in the office or even out at a property. You might need to have other members of your company get records themselves, from their own computers. Your business might double, and you don’t want a tool that won’t server your needs any more.

The most flexible property management programs are those running over the Internet. Because the records are kept on a Web server, you – or anyone else you authorize – can get to them from any Internet-connected computer. And unlike Windows property management programs, on-line property management software doesn’t limit the number of units (doors) you can manage.

Surprisingly, you don’t give up any security features when using the right on-line property management software. True, the records aren’t on your computer. Instead, they’re maintained on a computer that typically has much better protection than your own. It’ll be kept in a locked room, fire-safe room, with daily backups and multiple storage devices. The best on-line rental property programs also use SSL security so that all of your work is encrypted – and therefore completely off-limits to hackers.

All on-line rental property programs are sold by subscription. Look for one that doesn’t require a long-term commitment or a single annual payment. You want to be able to cancel without any penalties.

Because property management programs can be complex, look for one where support and training are included in the subscription fee. You want a company that looks to maintain a healthy long-term relationship with its customers. This is actually another advantage of on-line tools; they have to keep you satisfied for a long time, not just for the first 30 or 60 days.

Support and training should be offered on your schedule. Make sure your software vendor has extended support hours, especially if your office is on one coast and theirs is on another.

It goes without saying that the best property management software is developed by actual property managers. However, some developers rely on their own very limited experience. For example, they may know all about single-family houses, but have no clue about the special needs of commercial property investing or multifamily units. Make sure the company you choose relies on a wide variety of property managers, landlords and other experts to get product design tips.

In addition, you want your property management software to be responsive to your specific needs. Companies making Windows property management software can never be that responsive to customers, because upgrading the software is such a hassle. Such companies often only release upgrades every year or two, and when they do, their customers have to go through what may be a very messy upgrade process. On the other hand, on-line property management software can be upgraded whenever the company has a new feature that has been fully tested. The next time customers log in, the new features are ready for them to use.

Here are some of the features that you will absolutely want in your property management program.

• A full accounting package. Your program should support whichever accounting method you prefer, cash (simpler) or accrual (more detailed and preferred by most property managers). It should include a number of accounting reports that you can run at any time and for any period. You should be able to calculate late fees and discounts automatically

• Check writing. When you have to write a lot of checks for your business, it’s great to be able to just print them off on your computer. Your software vendor will put you in touch with at least one company that makes the kind of check forms you will need.

One word of caution: to print checks with blank check stock, you will need a laser printer and a special magnetic ink cartridge. The laser printer probably won’t be an issue, but the magnetic ink cartridge may be. A simpler solution is just to order preprinted check forms. These forms will have the basic information such as MICR numbers (the numbers at the bottom of the check, which are always printed in magnetic ink). You’ll still print checks, but just the amount, payee, date and other fields that don’t have to be in magnetic ink.

• Reminders. You should be able to set up reminders for appointments, projects, and other tasks. You should also get automatic reminders for the two things every property manager wants to be aware of: late rent payments and expiring leases.

• Many different data fields to let you store all the information you want, but not that many mandatory data fields. You should be able to use your software for as little or as much work as you like.

• Fast and easy data management. You’ll spend a lot of time entering records and finding what you need in your property management software. You don’t want something that will make it complicated and difficult to handle these tasks. Look for wizards and maybe even a “Quick Start” feature to make loading fast, and fast searching and sorting to let you very easily find what you need.

What if you find a property management program that is great, but not perfect? Many property managers will quit using a program because it doesn’t have the one specific report or calculation they really like. They then have a choice; they can keep on going with Excel or written ledgers, or they can continue on an endless search for the perfect program that simply doesn’t exist.

Instead, why not contact the company you are interested in and see if they can add the feature you want? You might learn that they’re already working on it. If not, they may be happy to add it to keep you satisfied.

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Brendan O'Brien is the developer of Property Master rental property management software. Our landlord software runs on any Web-connected computer with full accounting, alerts, nearly 50 reports, and many other great features. Check out our e-book for more great tips at pcpropertymaster.com.

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/thirty-questions-to-ask-your-property-manager.html http://www.articletrader.com/finance/thirty-questions-to-ask-your-property-manager.html Fri, 02 Nov 2007 00:00:00 -0500
• Your property manager will be receiving rent and fees on your behalf. A crooked manager could steal you blind.
• Your manager will be in charge of finding new tenants. A naïve or slipshod manager could bring in bad tenants who trash your building.
• Your manager will handle maintenance. A greedy manager could charge a fortune for simple repair jobs.

Here’s a thirty-question checklist for interviewing prospective property managers. The answers you get will provide a very solid understanding of each manager’s qualifications. You can also get an impression of a prospective manager from other cues – I’ll explain those at the end.

Finally, remember that you have to compare managers to others within an area. It’s possible that none of the prospective managers in one city will match the high standard of your terrific manager in another. On the other hand, if you can’t find a good manager in a city where you plan to invest in real estate, maybe you shouldn’t invest there.

The first questions have to do with finding good tenants, which I think is the key to a happy building. A building with good tenants tends to have fewer maintenance and other issues.

• How many vacancies do you have right now? Out of how many total units that you manage?
• What is the average length of time it takes to fill a vacancy?
• Is that average time getting longer or shorter?
• How do you market your rental units?
• Do you require an exclusive arrangement for marketing to new tenants?
• How does your web site look?
• What factors would make you reject a prospect?
• Would you accept a tenant who met your qualifications in some areas, but not others? Which qualifications are most important to you?
• What screening methods do you use?

You want a manager who finds good tenants reasonably quickly. He should use a variety of methods to find prospective tenants, such as a web site, Craigslist postings, newspaper ads, signs, flyers and more. Your manager should follow an extensive screening process, but be willing to accept a “maybe” tenant if the situation is right. You want a look at the web site to make sure that is inviting to prospective tenants, and constantly updated.

As for the exclusive arrangement, property managers never mind when you or somebody else finds prospects for them. However, in almost all cases, they will still want a rental fee for moving the prospect into your rental unit. Make sure you have a clause that if the unit hasn’t been rented for some time, and you or someone else you find brings in a new tenant, the rental fee is cut in half. You don’t want it cut to $0 because the manager will still have to screen prospects.

The next questions relate to tenant management. It’s just as important to keep good tenants as it is to find them.

• What does your lease look like?
• What is your late rent policy?
• What other rules do you set for tenants?
• What percentage of tenants do you have to evict?
• How does the eviction process work here?
• How do your tenants contact you?

I recommend sticking with the manager’s preferred lease, late rent policy, and rules unless you have a really major objection. If the manager is really experienced, chances are they’ve developed smart rules and policies over time. Tenants should be able to contact the manager through a variety of ways during the day, and have an emergency number for off hours. If the manager is always evicting tenants, he’s bringing in bad tenants.

The next questions relate to maintenance.

• Which kinds of maintenance jobs are handled in-house?
• Which ones do you use an outside handyman for?
• Which ones do you use professional contractors for?
• How many quotes do you get for jobs?
• How expensive does a job have to be for you to contact me before doing it?
• What are your rules for contractors being inside occupied rental units?
• Who are your preferred contractors?

Managers should have a well-thought-out system for assigning jobs to different parties – in-house employees, handyman and professional contractors. Almost any plumbing, heating, or electrical job should be handled by a professional. Other jobs, such as paving a parking lot, require special equipment that usually only professionals have. But most small jobs can be done by handymen who will cost you less.

You want multiple quotes for major jobs – say, anything over $500. You should also have a rule that contractors can never enter an occupied unit –even if the tenant is not home at the time – without a manager’s representative being there. Finally, you want the names of preferred contractors so you can run a quick check on them.

The last group of questions relates to experience. You want managers to know the local real estate world inside and out.

• How long have you been a property manager?
• How long have you been a manager in this area?
• Can I see some of the other properties you manage?
• Do you personally invest in real estate in this area?

Finally, you need to understand your arrangement with the property manager.

• What is your fee structure?
• How will I get reports?
• Do you require an exclusive arrangement to broker the property?
• How much notice will you give before terminating a contract?

The manager’s fees aren’t really important unless they are much higher than everybody else’s, or are so high that you really can’t afford them. Reports are very important because they are your only window into how your investments are performing. The best way is to get them on your own computer, on your time – as may be the case if they use on-line property management software.

You should not accept any exclusive arrangement to broker properties unless they have a limited term. In other words, if the properties don’t sell after a certain time, you can re-list with a different broker for no penalty.

Also, you should require good notice for the contract to be terminated – at least 30 days. That gives you time to find another manager.

Here are some other things to watch out for:

• A manager with a messy office or personal appearance. Chances are he doesn’t much care about the condition of the properties either.
• A manager you have a hard time reaching by phone or email. If he won’t return your messages now when he’s trying to get your business, what are the chances that he’ll do better later?
• A manager whom you sense is trying to intimidate you with knowledge. The “don’t ask stupid questions, I know all about this” approach is often a cover for not really knowing much at all.

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Brendan O'Brien is the developer of Property Master rental property management software. Our landlord software runs on any Web-connected computer with full accounting, alerts, nearly 50 reports, and many other great features. Check out our e-book for more great tips at pcpropertymaster.com.

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/real-estate/landlord-tools-for-organization.html http://www.articletrader.com/finance/real-estate/landlord-tools-for-organization.html Thu, 27 Sep 2007 00:00:00 -0500
Here’s a cautionary tale that will make my point clear. I knew a landlord who needed to evict a tenant. The only trouble was, he couldn’t find his copy of the tenant’s lease! He didn’t remember exactly what the lease terms were and certainly didn’t have the tenant’s signature on a document that spelled out the house rules. With no other options left, this landlord did something dangerous, unethical and even illegal – he entered the tenant’s apartment, poked around until he found the tenant’s copy of the lease, ran out, made a copy for himself, and snuck the tenant’s copy back in.

It’s easy to imagine what this landlord risked. If the tenant found out, he could have had the landlord arrested. Even if the tenant didn’t press criminal charges, a housing court judge would certainly have dismissed any eviction complaint. By using, and sticking with, a system of organizing his records, the landlord could have avoided all this.

I recommend using property management software to keep all of your records organized. At the same time, you should have a paper filing system so that original documents are available when you need them.

The most important part of my system is the landlord software. It keeps all of your documents organized automatically by tenant, building and owner; this means that you can find everything related to one tenant, for example, by simply searching on that tenant. When you go to a tenant record, you can click on tabs to see the tenant’s rent status, incidents, maintenance issues, lease document and so on.

Of course, you have to enter this information into the rental property program, which does take a little time. However, that’s nothing compared to the amount of time you save by having all of your records accessible any time you need them. Also, landlord software is getting better all the time. You can now import some information from other sources, like Microsoft Outlook email, to reduce my overall workload.

The other part of my organization is the paper filing system, which should be designed to match the computer system as closely as possible. It would be great if we never had to deal with paper documents. Unfortunately, legal authorities just won’t take our word for it that a lease document on our computers is exactly what the tenant signed. If we ever get audited, the IRS will want to see our actual bills, not what we recorded on the computer.

Because my computer organization is excellent, I almost never need to get anything from my paper filing system. The only way I would ever need anything from there would be if some third party, like my lawyer, needed an original copy of a document. It’s much more likely that I will just need some fact – how much was that property tax bill? – that doesn’t require an original.

My system starts with the premise that I will save every document I get or send out regarding my landlord business. I may not have time to file documents whenever I get them, so I have a “holding cell” where I put documents before I file them. My holding cell is a cubby on my desk. I put my receipts, bills and what have you in there as soon as I get them; this is usually at least once per day. I never put anything not related to landlording in there. I never put anything related to landlording anywhere else, and whenever I take anything out of there, I immediately record it in the property management software, then put it in the proper place in my paper filing system.

At least once per week, I go through the “holding cell” and file each document. The system is a series of folders inside larger dividers. For example, I have one divider for each tenant. Within the divider are folders for photos, the rental application, the lease, any correspondence, and written summaries of any incidents that took place at the tenant’s apartment. Those tenant dividers go inside a larger section for each property, which also has dividers for (for example) bills from different contractors.

This system requires a lot of file folders and dividers, as well as a fairly large file cabinet. It’s not really portable and that’s on purpose. I feel like every time I take a document out of my office, I might lose it. On the very rare occasions when I take something out, I would prefer to photocopy it, give the copy to the lawyer or accountant or whoever wants it, and stick the original right back in the files, where it belongs.

On the other hand, my property management software is portable. It runs on the Internet and I can access it from my laptop, or any other web-connected computer. That means I can get to my important records from almost anywhere. And, if I need an original paper document, I can get it in a day or two without much searching or aggravation.

For example, I can add notes from a tenant that a screen door is broken, then pull up my handyman’s phone number, call him, and schedule the appointment, all within my software.

The convenience of my property management software lets me spend time on more important and fun jobs; making my properties more profitable, and finding new and promising deals.

The last step, of course, would be a backup schedule for my data. With my online rental property software, that’s not necessary; because it’s hosted on a web server with constant backups. I know that whenever I need some crucial fact, I can open up my laptop, and it’ll be right there in front of me.

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Brendan O'Brien is the developer of Property Master rental property management software. Our landlord software runs on any Web-connected computer with full accounting, alerts, nearly 50 reports, and many other great features. http://www.pcpropertymaster.com

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/real-estate/landlord-tips-whos-going-to-do-your-maintenance.html http://www.articletrader.com/finance/real-estate/landlord-tips-whos-going-to-do-your-maintenance.html Sun, 23 Sep 2007 00:00:00 -0500
You must weigh at least three factors in deciding who will do a job. Those factors are cost, reliability, and quality. If you’re thinking about taking on the job yourself, consider time and something I’ll call “the fun factor” as well. The fun factor is the enjoyment you may get out of doing handyman jobs. In my next article, I’ll help you figure out where you should take these projects on.

Here’s how the different candidates to do work, other than yourself, typically grade on the performance factors.

Contractor - Worst on cost, but best on reliability and quality.
Handyman - Medium on all factors.
Tenant - Best on cost, but worst on reliability and quality.

Of course the actual results depend on your actual contractors, handymen, and tenants. For contractors in particular, however, quality and reliability should be absolutes. If your contractor isn’t the best in those areas, replace him.

Now it’s time to think about where you want the best quality. It is an absolute must on any jobs that directly affect the safety of the building, as well as any jobs that, if not done perfectly, may result in a more serious expense later. Keeping that in mind, you certainly want a real licensed plumber, electrician and HVAC contractor for all significant projects in those areas. Be very hesitant to employ a handyman here, and never use a tenant for such jobs (unless, of course, the tenant is a licensed professional contractor).

A significant job is one where there is potential for major damage if the job is not done right. For electrical jobs, you probably don’t need a pro to replace outlets or switches, install overhead lights, or replace circuit breakers. For plumbing jobs, you don’t need a pro to unclog most drains or replace washers in faucets, toilet parts, or showerheads. For HVAC, you don’t need a pro to replace filters, thermostats or zone valves, or purge forced water heating circuits. You can probably think of other similar projects.

You should also think about insurability when considering a contractor. Your property insurance will not cover damage caused by bad repair work, unless the repair is done by a licensed contractor.

A licensed contractor is often your best bet in emergency situations. This is because such a contractor is usually on call 24/7, has replacement parts in inventory, and has more than one pro on staff.

If your buildings are in a snowy part of the country, you also need a very good snowplow operator. Use one who has been in business for several years, lives locally, and will get the job done by the time you set.

Use your handyman for light carpentry jobs, painting, and the small electrical, plumbing and HVAC jobs where you don’t need a professional. A handyman can often also take on bigger jobs such as siding, building stairs or decks, or replacing windows. Many people who hire themselves out as handymen are actually licensed general contractors.

You’re much better off with a handyman who does have a contractor’s license, along with workers comp and liability insurance. This person will consider himself a professional and will probably be much more reliable as a result. However, you might have a hard time finding a handyman of this caliber.

A handyman who doesn’t have those credentials may still do very good work, and will probably charge less. However, he is much more likely to want payment in cash, to not be available when you really need him, or even to skip town with your money. You can avoid these problems by paying only a small part up front, by scheduling him in advance (‘I’ll see you at 9 a.m. Wednesday”), and by checking frequently to make sure the job is done.

How will you find a good handyman? Start by checking with the other members of your local landlords association, making sure that their criteria for a good handyman matches yours. If that doesn’t work out, check the Yellow Pages; then the classifieds in you local paper; then signs posted on community bulletin boards. A contractor hired off a bulletin board is much less likely to be reliable than one recommended by another landlord.

The primary reason to hire a tenant is cost. However, you should not hire tenants to do anything but the most basic jobs. Use tenants only for routine tasks like lawnmowing. Of course you can make an exception if you have a tenant who is a skilled handyman or professional contractor. In that case, however, the tenant will want to be paid his standard rates.

If you do hire a tenant, make sure it is someone who has lived in your building for many months, if not years, and who has proven to be reliable as a tenant. Don’t ever allow a tenant to “work off” unpaid rent – the job probably won’t be done well and the tenant will still expect credit.

The other danger in hiring a tenant to do work is that problems with one relationship may affect the other. For example, suppose you hire a tenant to plow and he does a bad job. Now you’ve got a problem with your tenant and a problem with your snowplower. You may have to replace both.

For that reason, if you do hire a tenant, try to keep the two relationships as separate as possible. Write up a separate agreement that spells out what the tenant has to do and how much he’ll be paid. Rather than accept a lower rent, insist on full rent payments and pay separately for the work the tenant does.

If you do use a tenant or handyman to do projects, set an ironclad rule that he or she can never enter another tenant’s unit to do work – even if the tenant is there – without you also being there. This will help protect you from liability.

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Brendan O'Brien is the developer of Property Master property management software. Our landlord software runs on any Web-connected computer with full accounting, alerts, nearly 50 reports, and many other great features. http://www.pcpropertymaster.com

Source: http://www.articletrader.com ]]> http://www.articletrader.com/finance/real-estate/landlord-tips-avoiding-the-huge-costs-of-tax-preparation.html http://www.articletrader.com/finance/real-estate/landlord-tips-avoiding-the-huge-costs-of-tax-preparation.html Wed, 12 Sep 2007 00:00:00 -0500
The end of the winter is the worst possible time to get a huge unexpected bill. And yet here it comes; hundreds or even thousands of dollars due to your tax advisor.

Fortunately, there are ways to really reduce this bill without adding a lot to your workload. The key is to organize your tax documents in a way that will let your CPA or bookkeeper (or yourself, if you do your own business taxes) prepare your return in a lot less time.

I use property management software to organize all of my income, expenses and assets, and make sure that my bank account statements match up with my own personal accounting. It's faster than maintaining my records in Excel, and it only takes a little longer than the method used by lots of old-school landlords; stuffing all their records into a shoebox and hoping for the best.

Because you’re organizing your landlording income and expenses in your property management software as they occur throughout the year, they are completely organized and ready for you at the end of the year, at tax prep time. Somebody’s going to be doing a lot less work then – either your tax advisor (which means you pay him less) or yourself (which means you get to bed earlier).

You want your records to be organized along the categories of the IRS Schedule E form, which you use to report rental property income and loss, along with income and loss from related investments such as partnerships and trusts. You'll need to submit an IRS Schedule E along with your 1040 tax return. You'll also take the summarized results from the Schedule E and incorporate them into your 1040 calculations. You can do all this with the correct property management software.

There are two Schedule E categories for Income and 14 for Expenses. For Income, any time you receive rents, you'll record them in your rental property program as a deposit; thus updating both your bank account records and your ledger account records. For Expenses, any time you spend money on anything related to your properties, you'll record those Expenses either through the check register or a journal entry. Your property management program should let you enter any Expense under a category that matches a Schedule E category; they are Advertising, Auto and Travel, Cleaning and Maintenance, Commissions, Insurance, Legal and other Professional Fees, Management Fees, Mortgage Interest, Other Interest, Repairs, Supplies, Taxes, Utilities, Other, and Depreciation. Some of these property management expense categories will make perfect sense to you, but others may need explanation.

• Advertising: this is really all of your marketing expenses, including things like signs and web postings.

• Auto and Travel: this is an easy Expense to miss because you won't pay it with a check or something else that's easily tied to your bank accounts. One option is to record all the actual expenses such as gas, oil and depreciation. The other, simpler way is to just record your mileage spent on business travel and multiply the total times the current per-mile expense rate (48.5 cents for 2007).

Not only is it simpler to record expenses this way, it may also be a better deal for you. That 48.5 cents per mile applies whether you are driving a new Hummer H2 or an old Toyota Corolla. Obviously you spend a lot less than 48 cents a mile driving that old Toyota (and it makes a better impression on your tenants).

You should record auto expenses by mileage every time you take a trip related to your investments; these include every time you drive to a building. Once per month, if you can do so, pay yourself for the mileage or any other expenses from personal funds with a check from your business account. Record that as well. You can also expense tolls and parking fees, but not tickets or other legal fees from parking or driving violations.

• Mortgage Interest: new landlords often think they can expense all of their debt service, which is your mortgage payments plus any other money paid toward retiring the loan. But you can't expense the money that goes toward principal because it's not really an expense. For example, suppose you make a $1,000 mortgage payment, $200 of which goes to principal and the rest to interest. By doing so, you spend $1,000 from your checking account, while increasing your equity in the property by $200. The correct transaction will be a $1,000 credit to the checking account, an $800 debit to the Mortgage expense and a $200 debit to the Building Equity Asset account. Your rental property program should calculate this automatically.

• Depreciation: this expense relates to the natural deterioration that happens to almost any long-lasting asset. Most landlords think of depreciation in terms of buildings. For example, most residential buildings have a depreciation period of 27 1/2 years. This means that you can take 1/27.5 (3.63636... percent) of the building's value as an expense each year; until you've owned it for 27.5 years or sell it, whichever comes first. How are you going to determine the building's value? Multiply the purchase price by this ratio: building assessment / overall assessment. You can usually get the assessments from the town or county.

It makes a lot of sense to depreciate items in a building separately from the building itself, because such items usually have shorter recovery periods (meaning you can take more of the value - as much as 20 or even 33 percent - each year until the end of the period).

Depreciation is tricky - one reason is that the federal government frequently changes depreciation rules in esoteric ways. For example, they changed the rules to make investing in New York City more appealing after the 9/11 attacks. It may make sense to get some additional help from your tax advisor here.

Around February 1st of the new year, print out a profit and loss report and all of your bank reconciliation reports for the previous year. All of this information will be neatly organized by your property management software. Review the reports carefully and either send them to your tax advisor or enter the information into tax forms yourself. If you send them to your tax advisor, include the actual bank statements as well. He'll want these records to prove that you recorded all of your financial transactions honestly.

At the same time, make sure your CPA or bookkeeper knows that you're NOT expecting him to do your Schedule E calculations all by himself. You don't expect to be charged for all that work, either.

Last point - even though property management software is going to help you with your recordkeeping and calculations, don't throw out your paper records. You'll need them if you are ever audited.

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Brendan is the developer of Property Master property management software. Our rental property software runs on any Web-connected computer with full accounting, alerts, nearly 50 reports, and many other great features. http://www.pcpropertymaster.com.

Source: http://www.articletrader.com ]]>