The Best Property Management Software: Manila Envelopes

OK, you’ve bought your first investment property and there are tenants paying you rent, now what? Do you incorporate? Do you buy property management software like QuickBooks to organize yourself? Or, do you call an Accountant? What can you use as write offs against the property?

We get these types of questions all the time, from both beginners and experienced investors.

Here are a few things we’ve done without property management software over the years that have really helped us.

#1 Forget Property Management Software When You Have Manila Envelopes

This may sound ridiculous but when you begin owning investment property the biggest problem isn’t always collecting rent. It’s keeping all the paperwork you generate organized so that you can take advantage of all the tax benefits available.

Real Estate investments somehow swamp you with tons of receipts and paperwork that needs to be recorded properly.

When we first started, Nick and I found ourselves coming home at the end of the day and tossing our receipts in a corner somewhere and then misplacing them. We soon realized we needed some kind of property management software or system.

Here’s what we did to fix the problem.

1. We bought manila envelopes and with a Sharpie market we labelled each of them with the address of the property.
2. We found a convenient spot in our house to store this envelope. Initially it was a drawer in the kitchen.
3. Then when we walked in the door at the end of the day we pulled out whatever receipts we had in our pockets and filed them into the manila envelope for the property.

We’re almost embarrassed to admit it but this little system solved our problem of losing receipts.

#2 The Power of a Simple Spreadsheet for Expenses

Next, we asked our Accountant for a list of the expense categories that existed for Rental Properties.

He turned our attention to Form T776 of the Personal Income Tax Return, the “Statement of Real Estate Rentals”.

Aside: If you Google it you’ll find an Adobe PDF of this form online.

1. We then created a Microsoft Excel Spreadsheet with each of these categories as a line item for each property.
2. Next, each month we would take each manila envelope and enter the total amount of expenses for that month next to each expense item.
3. After each receipt was recorded we would file it away in a second manila envelope labelled with the property address and the word “recorded” underneath it. This way we had two manila envelopes for each property. One to collect the receipts, and one to put them in after we had processed them.
4. At the end of the year we added up the total amount of expenses for each expense category.
5. We then filed the receipts away in case we ever needed them.

#3 The Power of a Simple Spreadsheet for Income

On the very same spreadsheet we would list off the Tenant’s name for the property and then record how much they paid each month.

Under the rent we would also include how many “credits” they had earned for that month if it was a Rent to Own property.

This way we had a complete summary on one spreadsheet of our income and expenses for the property.

Then at the end of the year we would simply print off that single one sheet of paper for each property and walk into our Accountant’s office with it.

Simple as pie and no property management software needed.

The only thing we would recommend deleting would be any mention of “credits” for Rent to Own properties.

That line just seemed to confuse many Accountants and doesn’t impact anything until the tenant in a Rent to Own property makes the purchase.

The entire lease amount is treated as straight rental income.

We’re obviously not Accountants, so if you have specific questions around this point make sure you reach out to one.

#4 Using an Accountant

We highly recommend using an Accountant when you have rental properties.

A good real estate Accountant will cost you approximately $250 for a tax return, however, it’s been our experience that they will easily save you more than that on your taxes or increase your return by at least that much.

And each year we would quiz our Accountant about what expenses would qualify as legitimate write-offs for rental properties until we had a good understanding of them.

And there you have it. Our simple system for staying organized and maximizing our write-offs without property management software.

We found that there was no need to use property management software like QuickBooks, and it just complicated our lives until we got over about five properties.

Once you have a half dozen properties setting up property management software like QuickBooks can be useful for running Income reports on your properties. But don’t feel you have to rush off and learn QuickBooks right away, there’s just no need.

And when the time is right for you to use property management software like QuickBooks you can ask your Accountant to help you set it up and even give you a walkthrough of how to use it.

Most Accountants will gladly go over that with you because by teaching you how to do things properly it makes their lives easier when filing your return!