Like any other business, when you’re managing your rental properties, you’ll need an accounting system. The specialized system used by landlords is called a rent ledger. You’ll sometimes here a rent ledger called a lease ledger or rental ledger.
Not having a good rent ledger is like driving a car with no dashboard. You won’t have the real-time information you need to make decisions necessary to keep your landlord business on track — or with this analogy, on the road.
Here, we’ll answer many of the questions you may have about rent ledgers and how to use one.
What is a Rent Ledger?
Rent ledgers are financial record-keeping systems used to track your revenues and expenses related to the rental property. Of course, the revenues are the rent payments made by your tenants. The expenses are items like repair costs, maintenance costs, property taxes on the rental unit, and debt service for any mortgage you have on the property.
You can use old-fashioned paper ledger books to keep these records if you choose. But most landlords prefer to use either specialized templates for spreadsheets or specialized landlord accounting software as their rent ledger.
Each of these methods have their advantages and disadvantages. For example, you’ll never have to worry about a cyber-attack on your paper ledger. But, it’s much more difficult to make copies of a paper ledger and keep the backup in another location. With software, you can simply back up a copy to the cloud. Computer rent ledgers can produce advanced reports in less than a second. I could take hours to produce the same reports with a paper ledger.
What are the Benefits of Using a Rent Ledger?
A rent ledger provides a system to keep your landlord business organized. By documenting the business’s finances in a rent ledger, you’ll have a better feel for your income and expenses. Through special features in a rent ledger, you’ll better track your landlord business than you can with a generalized accounting system.
Generalized accounting systems don’t have a place for move-in dates or lease renewal dates. Yet, this is key information that landlords need. In many states, you can only increase the rent upon renewal of the lease. The income and expense parts of the rent ledger helps you to know if you need to increase the rent.
Rent ledgers keep information for each tenant. Is a tenant showing a pattern of late payments? You can spot this with a rent ledger. This helps you know if it’s necessary to warn the tenant — or perhaps start eviction proceedings.
Late Payments: There may be a case where you notify a tenant of a late payment, but the tenant disputes the late payment. An entry in the rent ledger serves as proof of the lateness. The tenant may produce a receipt or bank statement showing that they made the payment on time. With a digital rent ledger, you may have the receipt printed from the ledger itself. Usually, this will prevent a date error on the landlord’s side.
Eviction: If you need to evict a tenant, rent ledger documentation of missed payments are useful as evidence in court. Courts often favor a party that has a history of contemporaneous documentation of transactions.
Loan application: Rent ledgers can also provide evidence of income produced by a property when you’re seeking a loan. Having the evidence may be the difference between being approved or denied for a loan. If you’re approved, you could acquire more rental units, thereby increasing your income.
You may be a passive property owner, meaning you’ve hired a property management company to manage your rentals. By having a well-maintained rent ledger, you’ll know how well the property management company is doing.
Is there high turnover with a particular rental unit? That could mean the management company isn’t fulfilling its obligation to keep the property in good shape. Or, you may notice that many tenants default. That may mean the management company isn’t doing a good job of screening tenants.
What Information Do Rent Ledgers Contain?
Each line of a rent ledger represents a transaction. The core information found on each line item is:
- Transaction date
- Category of transaction, such as rent, late fee, security deposit, etc
- Amount of the transaction
- A running total of each tenant’s balance
Rent ledgers should also include the tenant’s name, contact information, rental unit address, lease start dates, and lease end dates.
Who Can Benefit From Using a Rent Ledger?
Anyone involved with the rental property can benefit from a rent ledger. This includes:
- Property managers
- Real estate agents
The landlord owns the property. Clearly, they’ll benefit from having quick access to information in the rent ledger. Often, landlords hire property managers or property management companies to oversee their rental properties. The information contained within the rent ledger is key for these professionals to make the best management decisions for the rental properties.
Tenants can benefit from the rent ledger when landlords share the ledger information with them. It can help avoid or resolve a payment dispute with a tenant. Landlords can share the information in a variety of ways. They could email the tenant a copy of the payment detail from the rent ledger. Or, some rent ledger software offers online portals so tenants can easily view their records. These self-service online portals can save the property managers time they might otherwise have to spend going over the ledger with tenants.
The landlord may have investors. Money from investors allows the landlord to purchase more properties. Investors in rental properties want to see the financial information for the property before they’ll put money into it. A digital rent ledger can quickly produce reports showing the likely return on investment.
Like investors, lenders are putting their money into the property. The only difference is that landlords pay lenders interest while they pay investors a percentage of the net income from the property. Just like investors want to see records proving income from the properties, lenders need this financial information too. They can quickly get this necessary information from the rent ledger.
Potential buyers of the property also want to know about its income flow before deciding how much they’ll pay for it. Real estate agents need to be able to provide reports and details from the rent ledger. Real estate agents also need this information to advise on an appropriate asking price for the property seller.
How to Create a Rent Ledger
There are a few ways to create a rent ledger. You could purchase an old-fashioned paper ledger and set it up to keep all the information you would in a digital ledger. But that wouldn’t give you the quick computational power of a digital ledger.
If you have a good understanding of spreadsheets, you can easily set up your own rent ledger in Excel, Google Sheets, or other online spreadsheets. There are free versions of most spreadsheets. Another option is to download a free or paid spreadsheet template. Often, the creators of these templates have thought of helpful options you may not have considered. Some even offer automatic receipt generation and printing.
The most feature-rich options are the online rent ledgers. Even some of the free options provide the ability for tenants to make payments online. Paid options that come with all the essential features of a rent ledger plus online portals for tenants will cost you $15 to $20 per month.
Beyond the core features of a rent ledger, these online software companies provide features such as:
- Online document storage
- Share features for business partners such as lenders and investors
- Automated bank connections
- Single-click receipt scanning
- Automated tenant reminders
- Automated late fees
- Tenant screening integration
- Work order management
Which rent ledger method is best for you is a matter of preference. But it’s probably a good idea to go with online software if you have many rental properties. A spreadsheet template may be the best option if you have only a few properties.
All businesses need an accounting system. For landlords, you need a system that is specially tailored for the unique aspects of property management — a rent ledger. This is the only way to have a good feel for the net income your properties produce.
One expense every landlord needs to include in their rent ledger is the cost of landlord insurance. At some point, you’re going to need to file a claim against your landlord policy and you’ll be glad you paid this essential expense. But that doesn’t mean you need to pay too much.