With 290 apartments to manage, it was tough for Rich Lana to keep it all organized – especially since he had to do it all after he got home from his day job.
The New York City information technology specialist has owned rental property for the past 14 years. In addition to managing his own property, he is also the property manager for four additional buildings.
In 2004, about a third of all home buyers purchased a second home or an investment property. Books touting strategies for becoming a millionaire through buying, owning, renovating, flipping, and renting investment properties are all the rage. And you can pay thousands of dollars for seminars, DVDs, and one-on-one lessons on making your fortune in real estate.
But once you own the properties, how do you keep it all organized?
Lana used an Excel spreadsheet. “But it wasn’t very useful,” he concedes.
“We put it in Quicken, but we could never get the kind of reports we wanted and would have to hand-type (the information) for taxes,” recalls Milton Burke, a real estate agent in Sacramento owns two properties in Fulsom, California, with a total of 28 rental units.
Which was apparently quite common.
“We were visiting Quicken customers and happen to notice that a lot of customers were tracking rental properties in Quicken,” recalls Jeff Zimmerman, product manager for Quicken Rental Property Manager 2.0, a software product from Intuit. “They were trying to make it work but there were frustrations.”
Zimmerman’s team did some research and discovered that of the 15 million people who own rental property in the U.S. and file Schedule E on their income taxes, 9 million people own 10 or fewer rental properties.
They also discovered that investors who owned hundreds or thousands of rental units either designed their own property management software or used professional-grade software that costs thousands of dollars. But most of the smaller landlords were either keeping track of their units by hand, on home-made spreadsheets that were taped together, or they were trying to make existing software work.
“Or they were using shoeboxes,” laughs Zimmerman.
Zimmerman says real estate investors have three big needs: They want to stay on top of their tenants and rent; they want to know if they’re making money on their property each month; and, they have to get ready for April 15th.
For real estate investors, the biggest problem of the three (from the IRS’s point of view at least) is tax season. If you want to file your taxes and take your deductions, the shoeboxes have to be turned over, receipts have to be accounted for, and expenses have to be balanced against rental income.
“It used to take us 3 to 4 weeks to do our taxes,” explains Lana. “When I used Excel, I had to check everything over and over and it never added up. Because of one typo, or something that I put into the wrong box, Excel changes everything. I usually ended up having to do my reports and spread sheets all over again.”
Quicken Rental Property Manager has an easy-to-use interface that is reminiscent of Quicken, the money management software created by Intuit. The software allows you to enter information about each tenant and his or her lease, how much the rent is, and if you have charged late fees or interest. When you receive rent checks, the software tracks who paid what and when.
The software also allows you to track expenses for each property, and even a particular rental unit in a property.
“It’s organized by property, and the expenses line up exactly with what you’re allowed to take from the IRS, including advertising, auto and travel, cleaning and maintenance, commissions, insurance, legal and accounting costs, management fees, mortgage interest paid to banks, other interest, repairs, supplies, taxes, utilities,” explains Zimmerman.
The program generates a tax report that investors can either hand to their accountant or tax preparers. Or, for those ready for a little more punishment, you can dump the information directly into Quicken’s TurboTax and generate your own tax return.
“We’ve been doing our own taxes for 10 years now and I would say this program saved us at least 8 to 10 hours in doing them,” said Burke. “Before this, trying to put our taxes together was a nightmare.”
Another nice feature of the software is that at any point in time, investors can see whether their property is making or losing money. If you own a building with multiple rental units, you can track how much money you’re making or losing on each individual unit within a building. While it may be possible to keep that in your head for an individual property, it quickly becomes difficult when you’ve got more than a few properties.
The program isn’t perfect. The recently introduced 2.0 version has apparently made some dramatic improvements over the initial version, but there are a few places where it could be more complete.
For example, when I was working with the software, I found myself wishing that it had some of Quicken’s checkbook and savings features built in. In the current version of the software, there is no way to balance out the bank accounts you use to pay for the expenses of the investment property. That means you have to rekey in the expenses to Quicken or QuickBooks, or keep them by hand elsewhere if you’re balancing the account.
It would be even nicer if the program contained e-banking features. Ideally, you’d be able to interface with bank software and download your checking account information and credit card expenses directly into the software.
If you sell the property, the program doesn’t seem to have a way to show you whether you’ve made or lost money overall. That seems like important information to know, although property owners can track that separately, Zimmerman notes.
Also, the program doesn’t generate leases or “rent due” notices. It seems to make sense that once you enter in the lease that you use, along with the tenant information, you should at least be able to print out rent due notices, or even a new lease.
And with Intuit’s ability to harness outside resources for its other software programs, it seems that this program should have the ability to do credit checks on prospective tenants – for a fee, of course.
Zimmerman says the research team is already working on these and other suggestions for expanding Quicken Rental Property Manager into the kind of software that can be a true “rent center” for property owners.
But until it gets there, the software is a heck of a lot more useful than keeping track of tenants with a shoebox and handmade spreadsheet. At $99, it’s an inexpensive but worthwhile tool for investors.
Quicken Rental Property Manager retails for $99. For more information, go to www.rental-property-manager.com.
March 15, 2006.