The Importance of Documenting Investor Activity
By Paul Esajian on December 6, 2013
While the investing landscape is constantly changing, there are basic guidelines that will always remain constant. The retention of records and actions should always remain a priority. Everything you do in the real estate business should be documented. This will make it easier on you when you need to quickly retrieve a piece of information. Secondly, it could save you massive amounts of money when you are trying to protect yourself from possible litigation or audit. The more documentation you have verifying your position, the better you will be able to protect yourself.
You may have legitimate housing expenses, but if you can’t document them, you could have a tough time fending off the IRS. You should get in the habit of accounting for every window you replace or mile you drive to your property. Every trip you make to Home Depot should be accompanied by a receipt. This may seem excessive, but with the increased number of investors getting audited, it just makes sense to cover your tracks.
Your record keeping diligence does not only apply to your rental expenses. Every offer you make, title you pull or housing application you accept should be noted. In times when you are slow, you can revert back to these items and see if there is anywhere you can improve on to increase your business. More importantly, you want these items to protect yourself from the people around you. If an applicant tries to accuse you of discriminating against them, you have an application and references to prove otherwise. The more documentation you have, the better equipped you will be to deal with realtors, sellers, attorneys and other investors.
It can be difficult to take the time and develop a good record keeping system while living a busy life. It may not produce immediate results, but the records you keep and the documentation you save could end up saving you thousands of dollars and countless hours down the road. Fortunately, there are many good programs currently available that you could use to help you get and stay organized. The days of keeping a stack of receipts on your desk are long gone. There is a better way to track your spending if you are willing to utilize the technology currently available.
For every property that your offer is accepted on, there may be five others that are not. What happens to these properties? Somewhere on your laptop, or even on your phone, you need to track these properties and see what they end up selling for. There are at least a few deals a year where simple due diligence, organization and following up can get you a deal. If you have tracked a property that you made an offer on three months ago and see it is still on the market, your seller’s position may have completely changed. If you make a follow up offer, more often than not this offer will be considered and in most cases accepted. Every time you have a rejected offer, you should make a note in your calendar to follow up at least 30 days later.
As an investor, you are under the watchful eye of the IRS and local real estate laws. It is more important than ever to make sure you are in compliance with your documents and retain as much information as possible in every aspect of your business. You never know when you will need to produce that one document that can make all of the difference.