Real Estate Investing As A Business and Backing Up Your Records

If you are treating your real estate investing as a serious business, which I recommend that you do, then it becomes clear very quickly that you absolutely must keep accurate accounting and up to date records for various aspects of your business. Just as importantly, you must backup this data EVERY DAY.

If you are a new investor, you may not think that you’d acquire much data when working on buying properties, but you’d be surprised to see just how often you end up going back to a particular motivated seller file to see what you discussed when they called 3 months earlier. Compound this type of data with all the follow up notes you have and you will quickly realize that you have dozens of complete Seller Property Information Files which took hundreds of hours to compile and put together in a fairly short amount of time. Unless you want to do all that work over again each time you have a computer or technology hiccup, I strongly encourage you to adopt an automatic system for backing this data up. I’ll discuss that more in a moment.

If you bought and then resold a property, the importance of keeping records is even clearer. Knowing all your costs and expenses is required for tax purposes, not to mention the learning benefits of being able to look back on your original analysis to see how your investment actually went compared to how your analysis projected it should go. While you may be able to live with losing this type of data should you have a computer hardware failure, an IRS agent auditing you will be far less forgiving.

When renting properties there is even more data to track. Beyond the paperwork, receipts and expenses from the initial purchase and fix up, you have on-going income and expenses for each month that the property is being managed. Throw in documenting correspondence between you and potential tenants and actual paying tenants and you’ve got quite a pile of data to deal with. Did you also realize that you are required, by law, to keep certain records documenting why a particular tenant was approved or declined? If you lose those you may not be able to clear yourself in a Fair Housing or Discrimination claim and it’ll cost you far more than any of us is willing to pay.

So, why have I taken the time to share with you just some of the records and data that we accumulate when we treat real estate investing as a business? Was it to give you a thorough, detailed checklist of what you need to save and what you don’t? No. My true intention is to emphasize–imagine me standing on top of a desk to make this next point–that you must backup this data. The time to worry about this is NOW… before your hard drive crashes or a fire wipes out your office and all of your paper records.

While you are welcome to use whatever system you want, I will tell you what I do. First, I keep paper records of the majority of this in a filing cabinet in my office, but as a backup, I keep almost all the really important documents stored on a local computer as well. To make sure that the computer records are safe and secure in case I lose the computer to theft or hardware malfunction, I also subscribe to an offsite data backup service (sign up free with that link). For less than $10 per month (and most services are free for the smallest plan), you can have all your computer data backed up every single night automatically to an offsite data center. I strongly recommend this strategy for backing up all of your important files.

Until my next post,

James

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