Managing rental properties is a complex task, especially when it comes to tracking which tenants are making payments on time and who have outstanding dues. If you’re not keeping an accurate paper trail and organizing your finances, your investment property can quickly become your worst nightmare.
A rent ledger is invaluable to property managers, landlords and accountants, as it makes your life a lot easier when paying taxes and settling landlord and tenant disputes.
What is Rent Ledger and why is it important?
A rent ledger keeps a record of monthly rent payments and the charges and balances of each of your tenants. Whether you have one rental unit or 100, maintaining a rent ledger is important for property managers and real estate investors because it helps them quickly identify each tenant’s rent payment status. In business terms, your rent ledger is like your accounts payable and accounts receivable ledgers.
Your Rent Ledger also identifies the following:
- Payment History
- Dues (if any)
- no late fee
When checking the Rent Ledger, you will see what you must collect and how much you are owed from tenants who are not paying their rent. You can also identify patterns, such as late payments or missed payments, and address them to the tenant if needed.
Who Can Benefit From Using Rent Ledger?
landlord and property owner
Rent ledgers are also very handy when you’re trying to sell a property. Your ledger documents the income potential of the property, which will help buyers decide whether they want to go through with the transaction.
tenants
Rent ledgers help tenants keep track of when they’re paid rent and what they owe. If they are also getting rent receipts from their landlord, they can compare the information in the receipts with the ledger to ensure the accuracy of the information. If it isn’t, the landlord can update it as needed.
real estate investor
Like landlords and property owners, real estate investors use rental ledgers to identify how profitable their investments are. This information helps them calculate the return on investment (ROI) and internal rate of return (IRR) to determine the value of their investment. If it’s not as much as you thought it would be, you can make an action plan to increase these values.
lenders
Rent ledgers help lenders identify a property’s net operating income (NOI), which is how much cash you have left over after paying rent and operating expenses. Similarly, the bookkeeping shows the vacancy rate of a property to lenders. If an apartment complex has 50 units and five vacant units, the vacancy rate is 10%.
Also, a rent ledger can identify a property’s debt service coverage ratio (DSCR). The DSCR compares a property’s monthly mortgage payment to its NOI to identify the owner’s cash flow after the mortgage payment for operating expenses. Typically, lenders look for a DSCR of 1.20 or greater.
Let’s say your fourplex generates gross monthly income of $6,000 and has no vacancies. The NOI of the property is $1,200, and then the mortgage payment is $3,000. Your DSCR is ($6,000 – $1,200) / $3,000, or 1.6.
home buyers and sellers
Rent ledgers give buyers an idea of how much a property is earning. They can use this to calculate their estimated ROI and/or IRR and decide whether the property is worth buying or not.
Similarly, sellers can use this information to determine the fair market value of their property. This information can also help them identify opportunities to improve their NOI or DSCR, making their property more desirable to buyers.
Benefits of having Rent Ledger
To recap, here are several ways rental bookkeeping can benefit you:
- Keep track of rental payments and security deposits
- Identify problem areas or patterns
- Assistance with rental or eviction disputes
- Realize new opportunities to improve your ROI, IRR, NOI and DSCR
- determine the fair market value of a property
- Determine whether an asset is worth buying or selling
How to Create a Rent Ledger
Rent ledgers can include a lot of information. Many landlords and investors use rental ledger templates to keep it simple.
Creating a rent ledger template is very simple. Start by filling in the required information regarding your property. You should include the following:
- property owner name
- property address
- property type
- big size
- zoning of use
- date of Report
Next, fill in all the information about a specific unit of your property, including:
- tenant name
- tenant address
- Square footage of property
- Number of bedrooms and bathrooms
- lease start date
- lease expiration date
- monthly rent payment
- additional rent (eg, parking, storage, etc.)
- rent due date
- payment date
- security deposit
- additional comment
Finally, print and sign your name at the bottom of the ledger:
Update your rental ledger regularly to make sure your information is accurate.
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Note by BiggerPockets: These are the views expressed by the author and do not necessarily represent the views of BigPockets.
