Rental Ledger: A Complete Guide for Landlords
If you’re involved in the Chicago rental market, you know that rental properties can come with a host of expenses that rent collection income offsets. It can be more difficult to track these expenses than you may think which is where a rental ledger comes into play. Using a ledger is a simple way to keep track of revenue and expenses on any given property.
What Is a Rental Ledger?
So, what does a rent ledger look like? General ledgers for rental properties are also referred to as lease ledgers. It is a financial tool that tracks all revenue and other expenses that are related to the rental agreement. Standard ledgers have columns that outline the expense date, description, amount paid, and outstanding balance. Both landlords and tenants can keep lease ledgers, but the entries may be different depending on the party.
What Is a Landlord Lease Ledger?
Landlords may use a single ledger for all of the properties that they manage, while others may use one ledger per property. Landlord ledgers keep track of all expenses, including taxes, mortgage, repairs, HOA fees, and more. This is also an ideal spot to keep track of when your tenant paid rent and how much they paid.
Some landlords like to include the date that their tenant paid the security deposit and the overall amount of that deposit. In the case that you need to deduct funds from the security deposit, make a note in the ledger.
What Is a Tenant Ledger?
Tenant ledgers consist of items such as monthly rent. Every time you make a payment, make sure to write it down in the ledger. If you’re going to need proof of payment, you may want to pay your rent only by check, so it is trackable. Tenant ledgers can act as evidence in the case that your landlord claims that you’re running late on rent and decides to take you to court.
Why Do You Need a Rental Ledger?
Running a well-oiled rental property requires that landlords are as organized as possible. With so many moving parts that go into running a rental property, landlords need all of the tools they can get to oversee their processes.
Rent ledgers act as a tool for landlords to keep careful records of expenses relating to their property for an easy reference point. By tracking incoming and expenses simultaneously, landlords have a detailed account of relevant financial figures related to each property.
Other benefits of a rental ledger include:
- Serves as a reference point for any future discrepancies;
- Allows landlords to look back on previous and present strategies and tailor their strategies in the future;
- An easy way to share relevant property information for incoming landlords.
Now, let's delve into some more details about how a rent ledger can benefit both the property manager and the tenant.
1. Provide a Clear Way to Track Rent Payments
The success of your rental unit depends on your monthly rental payments. If your tenants are behind on their monthly rent payment or they fail to pay you altogether, this is going to drastically impact your business.
Having a consistent payment ledger helps provide you with a real-time view of whether or not your tenants are paying rent in addition to an outline of your monthly income. You can also use a rent ledger template to help you determine what your financial situation will be in the upcoming months.
2. Provides Evidence of Late Rent Notice or Missing Payments
Your rental property business will need to have access to the complete payment history regardless of what the eviction process and laws are in your state. In the case that the tenant's rent was not paid and you are using this as grounds for eviction, you'll need to have clear documentation. When it comes to determining the rent payment status, the ledger is one of the most essential pieces of evidence that a landlord can present to prove non-payment.
3. Identify Opportunities for Business Growth and Better Tenants
Regardless of how many rental units you're overseeing, it's important to consider how you can use this data to plan for growth. By having one location where you can track not only the monthly rent amount but your other expenses, you'll be able to quickly understand where you are financial. Keeping track of these long-term property trends can pinpoint where you are losing money and where you can tweak the lease agreement to get more money from your tenants.
What Information Do Rental Ledgers Include?
Not all rent ledgers will include the same information; some contain more in-depth information than others. The specific information that is included in each rental ledger is highly dependent on the landlord. Some include numbers such as rental rates and collections while others have a more detailed account of each transaction.
If you’re interested in learning about the specific items to include on a longer rent ledger, here is an excellent starting point:
- Your name or the property owner’s name
- The address of the property
- The classification of property (condo, single-family, multi-family)
- Lot size
- Zoning rules
- Name of the tenant(s)
- The square footage of the unit
- The number of bedrooms and bathrooms
- The start and end dates of the lease
- The monthly rental rate
- Any additional rent prices such as pet fees
- The date that the rent is due
- Security deposit amount and date
- Any other detailed notes that you may find useful
How to Use a Rental Ledger
Many investors note that rent ledgers are one of their most valuable tools, but how are they used? Some investors use their rent ledger to record rental transactions. Others use it as a utility tool and find many more use cases for the ledger.
From owners to occupants to lenders to tenants, the need for a rent ledger is widespread as the ledger compiles key data. Here are only some of the questions that a rent ledger template can help you answer.
- Has the tenant paid all the rent for the month?
- What is the history of the rental payment?
- Is there any property maintenance that needs to be completed and how much will it cost?
- What is the property address type and are there any late fees taken into consideration?
- Is it possible to still be profitable from a short-term rental?
- If managing multiple properties, how can you ensure all rent has been paid?
- Is it likely that the existing cash flow will continue to come in at the same pace?
Rental Ledger for Owners & Property Managers
Owners and property managers typically lean on ledgers in a more traditional sense, using them to keep track of payment history and to ensure that all past and future transactions are accounted for. In addition, accurate real estate ledgers can play a large role in navigating the eviction process if necessary.
Let’s say a rent ledger helps to prove that a tenant has been unable to pay their rent in a timely manner, an important facet of their leasing obligation. In this case, the property owner can use the ledger to prove that their tenant has not been keeping up with their rent.
Keeping track of security deposits is another way that property owners utilize rent ledgers. Keeping a detailed record of how much each individual tenant paid and when they submitted their payment can make it easy to determine how much the tenant will receive when the lease is over. Keeping accurate records can reduce unnecessary friction and complications during this time.
Finally, rent ledgers are useful to use when selling a property. It helps to demonstrate how much rental income a particular property can generate over a fixed amount of time. Buyers can determine whether or not the rental income helps to justify the price of the property.
Rental Ledger for Buyers & Lenders
Buyers and lenders like to see rental ledgers in order to help make their decision whether or not they should follow through with the purchase of a property. The cash flow potential is meticulously outlined in this document, helping the buyer gain insight into what they can expect from payments that may be coming down the pipeline. It’s important to note that previous ledgers are not a guarantee for future payments, however, they are a great reference point that demonstrates the long-term investment potential of a property.
Lenders use rental ledgers to determine whether or not they should underwrite a loan. They utilize ledgers to dictate the property’s debt service coverage ratio (DSCR). This ratio compares the net operating income of the property to how much-incurred debt the buyer will take on. In other words, this means that the banks want to determine the amount of risk they are taking on by lending a loan to someone who has the intention of renting the property.
Rental Ledger for Tenants
Rent ledgers aren’t only for buyers, tenants can also use them. Tenant rental ledgers are highly useful for proving their payment history. In the case that a tenant is looking to purchase a home in the future, they can request to obtain a copy of the landlord’s rent ledger for an easy place to see past payments. The better the ledger represents the tenant and future buyer’s reliability and consistency, the higher the chances that they will be able to obtain a loan.
Rental payment ledgers are also helpful in the case that a landlord inaccurately accuses a tenant of late or missing payment. Updated rental ledgers can act as proof of payment and may be used to dispute unlawful conviction.
33 Realty Can Help!
At 33 Realty, we have seasoned Chicago property managers who can help you with your rental ledgers and related real estate services. Throughout the city, we’ve built a trustworthy reputation and our team is only a phone call away! If you’re interested in learning more about rental ledgers or you’re ready to get started, please contact our team today.
When should I start a landlord rent ledger?
Having a rent ledger answers essential questions to help your business, so landlords must strive to use a ledger from day one. If you aren't currently using one to manage your properties, it's ideal to get one started as soon as possible. You can find a rental ledger template online to help you kickstart the process and it will help you in areas such as collecting rent, the tenant screening process, determining how much money your property generates, how much rent to charge, etc.
Are property owners required to keep rental ledgers?
Technically speaking, there is no law that requires property managers or property owners to keep rental ledgers. However, they are expected to keep payment records as this is an example of an important document. For example, if a tenant isn't continuing to pay their rent on time, you'll need to provide tenants with the evidence needed to prove your case. Having this data handy makes your job as a landlord significantly easier and it can help you generate more profits in the big picture of your rental property.
Can rent ledgers help during eviction hearings?
Rental ledgers provide landlords with clear documentation in the case of an eviction hearing. This is especially true if you are trying to prove non-payment. Usually, this sole document is sufficient in proving whether a tenant has been paying rent on the due date or if they aren't paying rent altogether. In the case that a tenant is disputing your records, there's a chance that the court will request documents from financial institutions such as bank statements, but usually, the lack of income received via the rent ledger is enough to move forward with the eviction process.