Like most investors, you’re in the real estate game because you want to make money. Having relatively dependable passive income bolster your bank account is a welcome sight every month. Even with investment properties, you’ve got to spend money to make money. That means your bank account isn’t a one-way street, money will be flowing in and out regularly. This week we’d like to talk about the less glamorous side of investment properties: documenting all your expenses.
The Importance of Keeping Track
Recording your expenses serves two important functions:
- You always have a clear picture of your investment’s financial health. With money flowing in and out, it’s easy to lose track of how much profit you’re actually making. Without proper records, it is more difficult to see recurring patterns. For example, if you’re constantly repairing items in a single unit, it could be a sign of a bigger problem.
- You’re well prepared for tax time. If you show up and file your taxes without your expenses, you’ll end up owing much more than you are entitled to. Many expenses are tax-deductible, and as such, will result in significant savings. For example, if you choose to work with a third-party property management company, you may write off that expense as long as you’re keeping those receipts.
Types of Expenses
In your reports, it is often helpful to know the difference between current expenses and capital expenses:
- Current Expenses. These are the day-to-day costs with short-term value and are incurred in the taxation year. Examples of current expenses are advertising, minor repairs, property taxes, utilities, etc.
- Capital Expenses. On the other hand, capital improvements add long-term value, typically in the form of a permanent addition to the building or structural improvements. Unlike capital expenses, these are not immediately deductible but depreciated over time through Capital Cost Allowance (CCA).
Tracking rental expenses can feel overwhelming, even as a necessary part of an investment. Reduce your stress levels by utilizing one of the many online software programs to keep your costs straight. If you still feel like the task is too daunting, consider working with a professional property management company. At GIL Property Management, we offer a full management package where we coordinate a wide variety of expenses and maintain excellent records. Contact our team today to get started!