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
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.
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, our Chicago property managers are happy to help you with your rental ledgers or any other related real estate services. We’ve built a proven trustworthy reputation throughout the city, and we’re only a phone call away! Contact us today to get started.