As anyone who’s owned investment property knows, it’s a bit of an overstatement to call it “passive” income. Regardless of where you are in the investment process, there will always be work to do, even if you’ve delegated all of the heavy lifting to others. One area that will still require your attention to some degree is bookkeeping. The attention you pay to your bookkeeping can make the difference between success and insolvency. If that sounds like an exaggeration, try filing your taxes without any records of your business expenses.
If you’re doing your own bookkeeping, you need to be organized. Most people are guilty at some point of having random piles of paper on their desk. But when you’re a property owner, you don’t want to fall into these traps. That type of “loose” organization will require extra time to find whatever it is you’re looking for, or even worse – important documents can go missing. When you own a rental property, a lot of these papers are money. For example, if an appliance breaks down, you’ll want to find the warrantee. Receipts, leases, correspondence with vendors and tenants – you want to be able to locate all of those easily.
A lot of you will decide that it’s better to work with a bookkeeper. As with anyone you hire for your team, get referrals from people you trust. You’ll want to make sure that your bookkeeper understands what you’re looking for.
Here are five key things to look for when you’re hiring a bookkeeper:
- They can work independently.
When you’re getting up and running, there will probably be more frequent questions, which is understandable. Eventually, you should have a system in place where the bulk of the tasks are self-explanatory.
- Their reports are clear.
You absolutely don’t want a bookkeeper who needs to personally explain their reports. If someone “has their own system,” and it’s totally unclear, you will be dependent on that person to understand your own books.
- The books are current.
You and your bookkeeper should have a clear understanding of how often the books need to be updated, and they should stick to that. You can decide together how frequently they should be updated – daily, weekly, monthly. It’s up to you, but make sure that the consistency is there.
- They can help strategize ways to save.
When you’re interviewing potential bookkeepers, ask them about their familiarity with current tax laws and how they’ve been able to lower their other clients’ tax liability.
- They can communicate with you clearly.
If your bookkeeper is brilliant, but unable to explain their methods, reports, or tax strategies to you, that won’t be a successful relationship. Bookkeepers need to be able to explain things to you in a way that you can understand.
When it comes to bookkeepers, it’s important to foster an atmosphere in which they can work efficiently. That means that you need to be organized too. Your records don’t need to be meticulous, but organized enough that your bookkeeper can make sense of them. Handing them a huge batch of documents and telling them to make sense of them isn’t a great use of their time. Also, if you’re paying them by the hour, that will be more money that you’ll have to pay them. Ultimately, this is a partnership that will help save you money, and the better you are as a client, the more they will be able to help you.
