Managing rental properties is a complex task, especially when it comes to knowing which tenants are paying on time and who has outstanding balances. If you don’t keep an accurate paper trail and organize your finances, your investment property can quickly become your biggest nightmare.
A rent registry is invaluable for property managers, landlords, and accountants because it makes your life easier when paying taxes and resolving landlord and tenant disputes.
In this article, we will discuss what a rent register is, how to create one, and the many benefits of having one.
What is a rent register and why is it important?
A rent register records the monthly rents as well as the charges and balances of each of your tenants. Whether you have one rental unit or 100, keeping a rent record is crucial for property managers and property investors because it helps them quickly identify each tenant’s rent payment status. In business terms, your rent register is like your accounts payable and accounts receivable registers.
Your rent register also identifies the following:
- Payment history
- Outstanding balances (if applicable)
- Any late fees
When reviewing a rent register, you will see what you should collect and how much you owe to tenants who do not pay their rent. You can also identify patterns, such as late or missed payments, and address them to the tenant if necessary.
Who can benefit from using a rent register?
Owners and Proprietors
Landlords and landlords use rent records to track payments and identify the amount of rent owed to them (if any).
Additionally, rent registries can keep track of security deposits. As a landlord, you are responsible for protecting your tenant’s security deposit and cannot use it for personal expenses. If you mix your business funds with a tenant’s security deposit check, you are to mix togetherwhich is illegal.
Rent records are also very handy when trying to sell a property. Your registry documents the property’s income potential, which will help buyers decide whether or not they want to close the deal.
Rent records help tenants know when they are getting their rent and what they owe. If they also receive rent receipts of their owner, they can compare the information on the receipts with that in the general ledger to ensure that the information is correct. If not, the owner can update it as needed.
Rent records also provide tenants with a paper trail in case they have to dispute rent payments or risk eviction.
Real estate investors
Like landlords and landlords, real estate investors use rent records to determine the profitability of their investments. This information helps them calculate their return on investment (ROI) and internal rate of return (IRR) to determine the value of their investment. If it’s not as much as you thought, you can develop an action plan to increase these values.
Rent records help lenders identify a property’s net operating income (NOI), which is the amount of money left over after collecting rent and paying operating expenses. Similarly, the ledger shows lenders a property’s vacancy rates. If an apartment complex has 50 units and five vacant units, the vacancy rate is 10%.
Additionally, a rent register can identify the rent for a property Debt service coverage ratio (DSCR). The DSCR compares a property’s monthly mortgage payment to its NOI to identify the owner’s cash flow after the operating expense mortgage payment has been paid. Typically, lenders look for a DSCR of 1.20 or higher.
Let’s say your quadruplex generates a gross monthly income of $6,000 and there are no vacant units. The property’s NOI is $1,200, then the mortgage payment is $3,000. Your DSCR is ($6,000 – $1,200) / $3,000, or 1.6.
Home buyers and sellers
Rent records give buyers insight into the income a property generates. They can use it to calculate their return on investment and/or projected IRR and decide if the property is worth buying.
Likewise, sellers can use this information to determine the fair market value of their property. This information can also help them identify opportunities to improve their NOI or DSCR, making their property more attractive to buyers.
Benefits of having a rent register
To recap, here are the many ways a rent registry can benefit you:
- Track rent and security deposits
- Identify problems or patterns
- Help with tenancy or eviction disputes
- Realize new opportunities to improve your ROI, IRR, NOI and DSCR
- Determine the fair market value of a property
- Determine if a property is worth buying or selling
How to make a rent register
Rent records can contain a lot of information. Many owners and investors use a rental register template for simplicity.
Creating a rent register template is quite simple. Start by filling in the essential information about your property. You must include the following:
- Owner’s name
- Property address
- Property type
- Lot size
- Zoning of use
- Postponement date
Next, fill in all the information for a specific unit in your property, including:
- Tenant name
- Tenant’s address
- Square footage of the property
- Number of bedrooms and bathrooms
- Lease start date
- Lease end date
- Monthly rent payment
- Additional rent (e.g. parking, storage, etc.)
- Rent due date
- The date of payment
- Security deposit
- Additional notes
Finally, write and sign your name at the bottom of the ledger:
Update your rent register regularly to ensure that your information is accurate.
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Note by BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.