You might be thinking, “I have a few properties, and keeping track of what’s going on isn’t difficult with some files on my desk” – but apply that thinking to 175 active properties in various stages of buying/selling, renters paying late, evictions, rehabs, and you’ve got an administrative nightmare if you don’t have systems in place.

Whether you have only a few properties or many, you might as well set up your business as if you’re planning for many properties – that way you’re already in the groove for expansion.

Color Coding Your Files

Have a file cabinet dedicated (or maybe just one of the drawers to start) to your properties.  I keep my files in alphabetical order by property address, not by seller or tenant.  Each property has two files.  How you color code your files is up to you, but I use green labels for the seller (think green for money!), and red labels for the tenant-buyer.  When I open my file drawers, it’s like Christmas!  My folders are half-tab which means the tab goes half way across the top of the folder.  It has been easier for me dealing with two tabs and one color is always on the right and the other color on the left.

Seller Folder

The seller folder holds all the documents that you signed with the seller – the pro-buyer contracts. If you own the property on a subject-to or a mortgage, it would contain all of the mortgage or subject-to documents.  It also contains any correspondence with that seller.  This folder would also contain any information about the home such as title work that was done, surveys, inspections, etc.

Tenant-Buyer Folder

The buyer folder holds all of the pro-seller contracts.  It also holds all of the correspondence with the buyer, original application, credit report, copies of payments, all bills, maintenance records, all correspondence, and a CD with digital pictures of the house.

This folder may even contain a digital video recording of a walk-though of the property with the tenant to show the condition of the home when they move in.  Keep a copy of each check they write, any water/sewer bills, and other bills that you have sent them.  You will need their check copies for when they get their mortgage.  These will be needed to prove that each payment was made and when.  They will need to get their cleared copies from the bank, but your copies will help them with check numbers to request from their bank.

This folder should also be used to keep track of any correspondence from the tenant.  Anytime the tenant calls we will record the call on a piece of paper, what they said, what we said and how we handled the call – if there was anything to be completed. You will want to document everything with the dates and times, and if you sent a maintenance person, who you sent and what they did to fix or not fix the problem. Hopefully, you will never need the documentation, but if you ever do need it, you will have it there.  Don’t throw it away until years after you have sold the property to them or anyone else. I had a case where a tenant sued me a year after they moved out for a slip and fall case from two and a half years earlier; however, we had all of our documentation, so it never went to court.  Keep your records!  I would have never even thought they would have tried that or were even upset about that, but they did.  They have a certain number of years to still come back and sue you.  So hope for the best and plan for the worst.

Software for Your Business

If you only have a few properties, you don’t need any special software for keeping track of their information.  A simple spreadsheet in Excel will work just fine.  However, if you have many properties, you will want to invest in a property management software program.  Talk to someone in your real estate investors group or on one of the real estate websites to see what program will meet your current needs.

When it comes to accounting, there are many accounting programs out there.  The one my office uses is QuickBooks.  It writes our checks, keeps our accounts balanced, and at the end of the year we get itemized reports per property, per expense account, per LLC, whatever we want.  All the good accounting programs will do this for you– the key is to make sure the software can track items by property so that whenever an item is paid or received, it is linked to a particular property.  If you are using the appropriate software and have religiously assigned the payments and deposits, you should be able to quickly see a summary and/or detail of all income, expenses, improvements, etc. by property.  In QuickBooks, using “Class Tracking” with each class being a particular property, we are able to easily accomplish this.  Another advantage to good bookkeeping records is your bill with your accountant will actually be lower because so much of his work is already completed.

Work Orders

When something goes wrong in a home, or when you have work to be completed, you will need a process to track the work.  We purchase work order books that have carbon copies from an office supply company. We put the property address on the work order, the tenant’s name and number, if occupied, and the problem.  We keep one copy for us and we give one to the handyman. The handyman must complete the work order and fill it out with detail of what was completed in order to get paid.  He/she brings back in his/her copy to us.  We then follow up with the tenant (if occupied) to make sure it was in fact completed. If so, we issue their check. We keep a copy of the work order in the tenant file. The repair cost may later be added to the purchase price, depending on the option contract with the buyer and the extent of the repair.  The seller may also be responsible depending on what was negotiated with them.

Tenant Payment Ledger

I set up a tenant payment ledger for each property that is either a rental or an option.  Here’s an example of what it will look like:

Company Name: (Your Company Name)____Option Fee____________________ NSF:____
Address: (of rental property)_______________Lease Dates:___________________________
Tenant Name:__________________________To:__________________________________
Home Phone: (of tenant-buyer)_____________From:________________________________
Rent: (monthly rent)_____________________Water Softener: (amount if applicable)_______
Other Charges: (if applicable)_____________City Water: ____________________________
Security Deposit:_______________________City Sewer:____________________________

 

The next section of the ledger is the payment history.  Our tenant will have an option fee of $1,500, and their move-in date is November 1, 2XXX.  The monthly rent will be $1,095, and there’s a quarterly water/sewer bill of $52.50. The credit column is for the tenant payments.  The debit column is what the tenant owes, and the balance is a combination of the credit and the debit.  It should look like this:

DATEDESCRIPTIONSDEBIT (owed)CREDIT (paid)BALANCE
11-1-XXOption Fee$1500.00$1500.00
11-1-XXNovember rent payment$1095.00$2295.00
11-1-XXOption Fee$1500.00$795.00
11-1-XXNovember rent payment$1095.00$0.00
11-10-XXWater/sewer$52.50$52.50
11-23-XXWater/sewer payment$52.50$0.00

Using a Tenant List

I have created a document showing all of the properties I own, the current tenants, their lease option expiration date and what utilities they are responsible to pay.  I also have a column showing me the owner and their address if I have purchased it on a lease option, along with my contract expiration date.  This list allows me at a glance to monitor who should be working on their financing at this time instead of digging through files to keep track. I can always stay ahead by checking my list on a regular basis and getting my tenants to a mortgage broker several months before their contract expires.

Sample Tenant List:

PropertyCompanyOwner infoContract EndTenantLease EndRentUtilitiesMisc. Info
123 FlintMR Ltd.Sally Harris (234)222-2343XX/05/31John & Jane Smith(333) 333-4444XX/03/31$995TwpWater/

sewer

Lease opt.
123 GenoaMR Ltd.Joe & Jane Smith (222)342-4444XX/02/28Cary & Jen Edwards(333) 333-4444XX/03/31$1,195Well, septicSoftenerLease opt.
123 HillMR LtdSally Seller(111)222-2222XX/3/31Leroy DuBois(333) 333-4444XX/04/30$1595Sewer/wellLease opt.
123 HuntMill Ltd.June Taylor123 Bliss Street

Ann Arbor 48123

(333) 333-4444

05/07/12Bradford Shue(333) 444-3333XX/05/31$1,795TownshipWater/sewerLease Opt.

Keeping Necessary Documents On Hand

It is extremely important to keep documents in your office that you will be using on a regular basis. Nothing is more annoying than needing a document and finding that you don’t have it. Spending time searching online or going to your local office supply store to get it is a waste of your valuable time.  For instance, depending on your state, you can download seven-day notice forms and other tenant or legal documents from the state website.  Save these documents to Word to enable you to pull them up and tailor them as needed.  You may want to create a “document checklist” to make sure that you have what you need and when your supply gets low you can reorder before you run out.

Good Recordkeeping is a Must!

In addition to the two above-mentioned folders, one more file should be used to store every receipt for each property.  There are always expenses that the tenant is not responsible for paying (advertising costs, attorney fees, improvements, etc.).  In our office, we use legal size folders or large title company envelopes (free from the title company that we use).  Each folder or envelope is labeled with the property address and filed in alphabetical order.  Every time an invoice or bill is paid for a particular property, a copy of the invoice is filed under the property address.  We note the check number and date paid on each invoice.  If the tenant is responsible for reimbursing us, a copy of the invoice is also placed in the tenant file.  At year end, these receipt files will contain all documentation needed to substantiate all expenses, improvements, etc. for that particular property.

For those items that cannot be associated with a particular property, for instance: general advertising not tied to a particular property (“We Lease Homes,”  “Office Manager Needed,” etc.), postage, office supplies, license fees, or the like, we use a file labeled “General Rentals” and file receipts for those type of expenses in this file.

The last type of file used to document our bookkeeping is a file for each bank account, labeled with the LLC name and “Cancelled Checks.”  We file all the bank statements and cancelled checks for that LLC in that file.

At year end, all files are moved to storage boxes.  Each box is labeled with the LLC name and year. Placed in this box are all the files with the receipts for each property under that LLC as well as the cancelled check/bank statement files for that LLC. This may seem like a lot of paper to store away and some of it may seem redundant (a copy in the tenant file and a copy in the property receipt file), but if you are ever unfortunate enough to go through an audit, everything you need to support your tax filing is in one box, efficiently organized and easy to retrieve.  You hope you will never need them, but there are times you will need a copy of a receipt and you certainly want to be able to locate it quickly.

Also, if you were ever to be audited, you want to be able to prove your expenses and income quickly and easily.  I have been audited twice and my audits went very well because my records were so easy to find and my records were very clean. The auditors first words when arriving to my office and getting a tour of our records was, “Wow, you are VERY organized!” You don’t want to be audited, but if you are, you want someone to respond that way.

When to Hire Someone

At some point you will need to hire someone to help in your business.  When your business has grown to the point where you are no longer able to handle all the tenants or bookkeeping or organization necessary to efficiently run your business or you are so busy handling the “little stuff” that you are not spending enough time on the real “money making” end of your business, it is time to get help.  The first thing to do is to evaluate your own strengths and weaknesses.  Then, hire someone to take over your own weak areas.  If you are great with tenants, but lousy at bookkeeping, get a part-time bookkeeper.  If you are a lousy organizer, get someone to help with this.  Perhaps the only thing you need at first is someone to handle the phones, correspondence and busy work.  If you have hired the right person, their responsibilities will grow as your business grows. The important thing is to stay focused on the most important part of your business, which is new finding properties.

Qualities for Hiring Staff

When hiring an office manager or property manager, there are many qualities you should consider; however, there are a few that are the most important I have discovered over the years of being in this business.

We all want the perfect candidate and employee, yet we can’t afford to have someone with all the qualities we desire. We must compromise. We must pick qualities that are the most important skills for the job we need accomplished.  The rest of the skills will be bonuses. This person will be your right hand person and part of your team; therefore, it is very important that you do select the right person. Here are the skills that I have found to be the most important over the years – and not necessarily in order of importance:

  • Firm: There are times when a tenant will try to push the limits with being late on rent. You want your assistant to be firm, but pleasant.
  • Pleasant: Your assistant must be pleasant even when you want to blow up. There are times when I have wanted to lose it with someone on the phone, but my assistant will keep tempers on the level because he/she is not personally involved, so he/she can be non-emotional and pleasant.
  • Detailed: This person must be able to be very detailed. They will be tracking tenants’ rent, late fees, water bills, option fees, correspondence and many other items. Everything must be detailed and documented.
  • Good Follow-Through: This area is so important as the little details that fall through the cracks can cost you tens of thousands of dollars and lawsuits. Making sure that nothing falls through the cracks is so important; for example, did the gas get turned on at your vacant home in January? In the Michigan area, this is very important, or you might have an ice skating rink in your home!  How do I know?  I had some follow through problems.
  • Organized: Following your systems you have in place and your check lists will be very important. Also, making sure that your assistant has things well organized, labeled, filed, etc., so that you can easily find them when you need them will be very important to you.
  • Computer Skills: It is impossible anymore to not be involved or know computers, so make sure your assistant has computer skills. Basic word processing and spreadsheets are usually the most important parts of property management. Spreadsheets can be taught, but word processing is a MUST.
  • Take Initiative/Work Independently: Your assistant must be a self-starter. They must know what to do when you are on the road. You will be in and out of the office much of the time, or you will want the ability to be. Make sure you hire someone capable of running things if you are out of town. Can they handle calls? Make decisions? Make good judgment calls? Will they work when you are not there watching them?

My best part-time employees are women that didn’t need their jobs; they wanted their jobs.  This makes a huge difference in the way they perform at work. They were all professional women who chose to take a few years off to be at home with their children. Once their children became school-aged, they all wanted to return to work part-time. They have excellent skills, enjoy working, but flexibility is their key (sort of like “terms” on a lease options!). This business can offer that.

Wendy’s Advice
If you are hiring someone part time – you might want to consider someone that doesn’t need a job, but instead someone who wants a job

When someone needs to work, you would think that would be enough motivation. However, if they are not motivated themselves, it is not enough to keep them motivated every day. If someone wants to work, that is enough motivation.  If they don’t need the money, but want the job, now there is someone you might want to consider.  Now these are all just guidelines, because I have also had several full time employees that did need the jobs that were fantastic also.

In Conclusion – Where Do I Go From Here

Lease Options are an excellent tool to have in your investment pipeline. This eBook was designed to outline the entire process from start to finish in the clearest and easiest terms. So what next?
If you haven’t looked already, I have additional on-line course segments which break down into sections what this eBook covers: Buying on Lease Options, Selling on Lease Options, and Working with Realtors®. All of the forms I refer to in this eBook are included with step-by-step instructions on how to fill them out along with actual calls I have made to buyers and sellers, plus a whole lot more.

I also offer live training classes—both One Day Workshops and a more in depth BootCamps hosted throughout the year. These training classes are very hands-on — we make calls to buyers, sellers, and Realtors®; we walk through the lease option process, practice role playing — everything you need to do to leave with your first lead.

The last page of this eBook has a valuable Reference Page which spells out where to reach me, where to check out my national speaking schedule, more free articles, and more.

I honestly believe my success comes from your success so…

Let’s Get Going!