Does It Really Make Any Difference?
When you are just starting out and you only have a few properties, how you set up your office files is probably not something that you think you need to spend a lot of time thinking about. But you will save yourself a lot of trouble down the line as you “build your empire”, if you give some serious thought in the beginning about how to best to set up your property files. It is much easier to start out with an efficient system where you will always be able to find your information quickly, than try to change everything after a few years. When you have a large portfolio of houses, all that paperwork can quickly get out of hand.
Where Do I Begin?
My filing system for my properties begins in my computer. I always like to print out my sales and purchase contracts from my computer whenever possible with all of the information filled in. There are times when I can’t do this for one reason or another, but typically I try to have at least most of the information already filled in on the contract when I make an offer on a house.
When I am saving the contract in the computer, I always save the information in the exact manner I will use in my file cabinets. They are filed with the name of the street, followed by the house number which is followed by the direction (N, S, E,W) if there is one. Numbered streets always come before the streets with names. I only put in the zip codes since I only buy in one city. If you are buying properties in more than one city or state, you will need to add that information at the end.
The file tabs would look something like this:
– 24th Street, 2214 S, 40211
– 42nd Street, 312 40212
– Alexander, 10224, 40243
– Main Street, 312 N 40202
– Venus Ave, 1602 40219
I’m sure you get the idea. You can see how quickly and easily you would be able to access your property information as opposed as filing these properties by date purchased or other system. The main key here is to put the house number after the street number or name. Can you imagine if you had 50 or 100 houses that all started with a number how difficult it would be to find a particular property in your files?
Setting Up Your File Cabinets
Throughout your investing career, you should only need 4 file drawers for all of your property information. If you set up your files this way, you will always be able to locate your information quickly.
I use 1/3rd cut manila file folders with different “color stripe” labels to identify and sort the different categories. By positioning these folders, everything is easy to see.
This is how I set up my files
*Drawer 1 is for properties owned. You will need two folders for each property.
-The first folder would have a color stripe label and it would hold all of your contracts, deeds closing statements, and land trust agreements; all of your legal documents.
-The second folder would have a different color stripe label and it would hold all of your mortgage documents, loan apps, and correspondence from the lender. If you refinance or pay off a loan, you will always create a new folder for the new mortgage. I keep all of these mortgage documents with the property even if I refinance at some point.
*Drawer 2 is for expenses and insurance. You will need two folders for each property.
-The first folder would have a color stripe label and it is for expenses. It contains receipts and does not get purged annually. You will keep one folder for all of these expenses until you sell the property.
-The second folder would have a different color stripe label and would hold all insurance policies and related correspondence for this property. I also keep all of these until the property is sold.
*Drawer 3 is for tenants and will only have one folder with a color stripe label.
-This folder contains EVERYTHING that pertains to this tenant. . Be sure to find out what the requirements are for your state.
*Drawer 4 is for business expenses not associated with the properties and for vendor information.
-Section 1 is for the current year’s expenses. You can either set these up by company like I do or by using the categories found on your Schedule E. For instance, you might simply put “Advertising 2011” on the folder and put all of the receipts in this folder even if you used several different vendors or companies. Since these will eventually be purged, I would put the year on these tabs.
-Section 2 is for vendor information.
-Section 3 is for last year’s expenses. I would recommend that you keep these handy because you will surely need to find something in these files for one reason or another. You may need to find something for taxes, or you may want to compare the price you paid for an item or a service last year with the price you are currently paying. Whatever that reason might be, I can almost guarantee you will need something from one of those folders, and it will be much easier to find in a file than in a box stored away somewhere.
I hope some of these tips on how I have set up my files will help you as a new (or experienced) investor. And, I want to thank my good friend Mike Butler for teaching me his system many years ago. He is an awesome friend and mentor to me. Mike is a real estate investor that owns many properties, an educator and one of the most innovative thinkers I have ever met. He hosts a free lunchtime seminar everyday at noon called the “Power Lunch Series” that lasts roughly 20 minutes. You can pick up some great education there from Mike, Harry Borders (my friend and my closing attorney) and other experts in the field of real estate investing. So head on over to the site the next time you have lunch. Grab a sandwich, listen in, and prepare to learn something. You can sign up to receive daily alerts on Mike’s site at http://www.mikebutler.com/.
Great suggestions for organizing your files. It makes life so much easier when you know where everything is.
I really like your idea about keeping a separate folder for vendor info.
Terry – I thank my good friend Mike Butler everyday for that tip. It was only after I had bought a number of properties that I realized just how glad I was that I used that system.
How is business?