I decided to write a series of blogs for beginners real estate investors. Time and again I find the same problems when dealing with real estate investors in the first years on the road. Even though they are actively networking with like-minded people, the bookkeeping part gets side tracked.
After investors acquire 2 or more properties, if they do not have a system, I can guarantee you that money will be lost. You may not know it yet if you do your own bookkeeping once a year or a few days before the tax filing deadline.
I have given the bad news to many investors who thought they were on top of their numbers. For some reason they did not follow up on collecting rent in arrears. How come?
Well, if they overleveraged because they were very optimistic about performing miracles with numbers that did not look good, the business will lose money guaranteed. One easy way to lose track is when your cash flow is negative and you have a leak in the roof. Better yet when a tenant does not pay and you have no cash reserve. If you are injecting money into your business, you can let a month go by without being paid by a tenant easily. You simply lose track of whose money it is from.
A few years ago, Joan requested my services to keep her books updated. I found out that one tenant missed a month’s rent at the beginning of the year. Joan could not believe this happened because the tenant was such a good one.
Luckily the tenant was still renting her apartment and she was able to collect it. Other occasions, the tenants were long gone and the investors were left with a loss. How can you recover rent that was not paid over a year ago?
I am not surprised, it happens all the time. Most investors do not have a system to avoid problems like that. A simple check mark on a spreadsheet, rent receipts issued on a monthly basis and bank reconciliation (money in the bank reconciled with rent receivable) will do. These tips alone can help you track who’s paying the rent and who’s not and then take the necessary steps to get paid.
The spreadsheet should contain at least:
- Name of tenant,
- Unit number,
- Rent amount,
- Form of payment such as cheque number (if applicable)
- Blank field for check mark, and
- The 12-month period.
This way, you will know when to serve N4 for rent arrears.
If you do not have a Bookkeeper and prepare your taxes before the deadline, make sure you get in the habit of checking if rents are paid on time on a monthly basis.
Note: Tenants deposit rent amount directly to the investor’s bank account.
“Reduce risks, pay on time, be efficient and save money and time. “ Renata Magalhaes