When you're just getting started in any business, you may not know exactly what you should be documenting. With rental businesses in particular, there's room for a lot of different things that can go wrong, and you may be asked to provide evidence to tenants or the government. It's vitally important to document everything you can, from as early on in your company's history as you're able. Here are just a few reasons why.
You never know when Uncle Sam is going want to see what you've been up to. You should document all of the money that changes hands in your business, as well as every deduction you're writing off, and any information that's salient to your property taxes. Make absolutely sure to file your taxes each year, and hold on to your tax returns for at least five years.
2. Eviction Proceedings
Evictions are notoriously difficult to carry out. Many evictions end up in court, because tenants are often aware of their rights and know that, in many situations, it's very difficult to remove them without a court order. (Even then, it can be hard.)
If an eviction does go to court, you'll need to be able to prove that you had communication with the tenant, over time, about the troublesome behavior that led to the eviction. Keep a record of all communication you have with your tenants, especially about troublesome behavior like late rent payments (or non-payments), interactions with the police, complaints from other tenants, and so forth. You never know when a situation could go south, so assume everything could.
3. Fair Housing Lawsuits
The Fair Housing Act (FHA) is federal law and protects certain classes of people from discrimination during the process of acquiring housing, including rental listings, screenings, and lease negotiations. If a tenant or prospective tenant suspects that you may have discriminated against him or her illegally, he or she may take you to court.
Make absolutely sure that you keep track of all records surrounding who you rent to and how you treat them. Don't just keep records on members of protected classes, which defeats the spirit of the FHA. Besides, if you're taken to court, you need to prove that you treated everyone who rented from you (or tried to rent from you) equally. The only way you'll be able to prove this is by keeping records on how you handled everyone who came to you seeking tenancy.
4. Maintenance Disputes
What types of maintenance are considered important (or even emergencies) may vary from place to place, but they often include things like heat in winter, as well as cleaning up or preventing mold growth. If your tenant suspects that you're neglecting important maintenance, he or she may take you to court. Be absolutely sure that you keep all records of any requests for maintenance, along with all the actions you take.
5. Problems with Bills
Your tenant may be handling the bills rather than you. If so, great! If not, you may find yourself needing to prove to the billing company, or your tenant, that you paid a bill on time, along with how much it was. If you hold onto this information, you'll always have it on hand to prove that you did your due diligence, just as you would in your personal life.
Keeping dated, detailed records is one of the most important things you can do for your business. You may never be taken to court or audited but, if you are, you can rest assured that you've done everything legally and have all of your records to prove it. That way, if you find yourself in a tight spot, you can simply hand over the relevant documentation, and rest easy.
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