Investing in and managing real estate generates a hefty stack of paperwork. Here’s a breakdown of the key documents that you should either keep on file or create during your ownership of the property.

Documents You Should Keep on File

You’ll need several types of documents to buy and prove ownership of your property. Keep these in a safe place:

Ownership Documents

Ownership documents are the paperwork related to the property sale, including the deed, purchase agreement, inspection reports, and so on. It‘s also a good idea to keep copies of written communication you’ve had with lenders, agents, sellers, and others involved with the transaction.

Loan Documents

Loan documents are generated during the process of applying for and securing your mortgage. Your lender will typically provide you with copies of each of the following:

  • Investment loan application: This includes the loan amount, financial projections for the property, and current leases on the property. The document gives the lender as much information as possible about your personal history, credit status, and financial standing.
  • Loan commitment: This letter from the lender approves your loan and all dates, fees, and conditions.
  • Loan note: The loan note is a document proving that you’ve received the loan.
  • Deed of trust: This document contains the account number, personal information, loan amount, and legal information associated with your mortgage (not to be confused with the deed on the property.)

Tax Records

Always keep careful tax records. In particular, you must declare income and expenses for all rental properties on the Schedule E portion of your IRS form 1040.

  • If your expenses exceed your rental income: You might be able to claim a deduction against your income for the amount of money you lost.
  • If your rental income exceeds your expenses: You’ll need to pay income tax on your rental income.

To support your claims regarding your rental income and related expenses, always maintain thorough paper records, keeping a separate file for:

  • Receipts: Keep all receipts related to rental income, expenses, and major upgrades, such as renovations.
  • Bank statements: Keep paper copies so you can check your records against the bank’s, in case accounting questions or irregularities arise.

Documents You Should Create

As you begin to rent and manage your property, you’ll need to create a number of documents to keep track of your expenses and your tenants.

  • Budget: Keep a detailed monthly budget that includes all expenses and income related to the property. This will help you track your financial position throughout the year and save headaches when tax season arrives.
  • Tenant records: Make files for each of your tenants and keep all related documents, such as photocopies of rent checks, on record. Maintaining thorough tenant records can help you justify your position if you ever have to evict tenants or defend yourself in a lawsuit.
  • Maintenance record: Keep a running list of maintenance expenses throughout one entire year. You can then use the total amount as a guideline for budgeting for repairs in future years.

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