Renting out your property (or properties) is an excellent way to earn some passive income. However, you do need to actively keep track of rental income and expenses. This is one aspect where it is crucial for you to be meticulous.
Importance of Tracking Rental Income and Expenses
Even if you own only one property that you rent out, you need to have a proper system worked out for tracking income and expenses. You wouldn’t want accidental mistakes like double-booking an expense to become an issue during a tax audit. Neither would you want to miss out on deductions that would potentially decrease your net taxable income. You can avoid these mistakes with a simple Excel method for tracking rental income and expenses.
There are several other reasons why you should maintain a comprehensive record of your rental income and expenses. These include but are not limited to keeping track of the profit or loss, obtaining necessary data to create strategies to maximise profits, allowing you to claim tax deductions, and audit purposes. You need to store all useful information in a clear, concise, and verifiable manner. Having such a record at hand means that you can communicate with your tenants more clearly and avoid confusion and conflicts.
Why Should You Use Excel to Track Your Rental Income and Expenses?
Excel offers you the convenience and ability to store and present all the information pertaining to your rental property in an organised and systematic manner. You can use its functions and built-in formulae to auto-compute and fill in data. Excel can convert your data into graphs and charts for easier and better understanding. It becomes easier for you to analyse your data.
Using Excel Templates
For the people who want to use Excel for tracking income and expenses, but do not want to create a spreadsheet from scratch, or do not have the time to do so, there are premade options. Several templates are available online for ease of use. In these templates, you can keep your record in steps as simple as downloading, opening, and entering your data.
These templates can help you quickly estimate your income and profitability from one or more of your properties. You can easily adjust the templates to include any other information that you deem necessary for the rental bookkeeping. Although some templates assume that the fiscal and tax year begins on January 1st and ends on December 31st, you can adjust this according to your requirement. It is easy to access and customise the templates.
Templates are available on the official website of Microsoft Office and also along with a subscription of Microsoft 365. Many users and companies also create Excel templates and put them up online. These are either available for free or for a price per template.
Creating Your Own Excel Spreadsheet for Tracking Rental Income and Expenses
If you like more control of the way your rental data is organised and processed and would love to do it all by yourself, you can easily create an Excel spreadsheet.
You could have a separate tab for each month. If you do so, then whatever format and layout you choose for one monthly tab, make sure you are consistent with it for the other tabs.
The data that you would normally enter in such a spreadsheet might include most or all of the following:
- Original price of the property rented out
- Market value
- Income (Gross and Net)
- Expenses (Monthly and Annual) (Expenses may include electricity, water, cleaning, phone supplies, and more similar to these)
- Property taxes
- Maintenance information
- Details of tenants, including information about security deposits
Your monthly tabs should ideally list out the properties (with a concise description). Under the income section, in addition to the rent received, you need to maintain a column for late fees to keep a track of that as well. You could add columns for the start and end date of the rental period, and the invoice ID. In the expense section, you will need to add columns for the payment date, category of expense, description, amount, supplier, and receipt number.
It is in your interest to have a summary tab for the budget and actual income and expenses for all the months of the year. This tab will provide you with all the information at one glance. Your summary tab should be set in such a manner that you do not need to enter the data manually. Rather, the information must appear in your summary tab from your monthly tabs.
The complex task of managing a rental property becomes much easier with a well-designed Excel spreadsheet.
Improving Your Records
Once you decide to keep track of your rental income and expenses with Excel, you can start right away using a template or creating your own Excel spreadsheet. You can keep improving your record-keeping skills with Excel training courses. A variety of courses are available and you can choose according to your requirements and skill levels. There is always room for improvement.
Now that you have an understanding of the ways to record rental income and expenses and maintain such records using Excel, get started immediately. The sooner you start, the sooner you can reap the benefits. With the right efforts and tactics, you can become a dynamic real-estate mogul.
