Latest / Cash Flow for Life / Chapter 22: Your Office—Business and Automation
Transcript
- 00;00;00;00 - 00;00;28;27 Chapter 22 Your Office Business and Automation. I once saw a personal finance guru out there who is quite popular and teaches people how to think richer so that they'll become richer. She tells a story about organizing money for success by organizing. She means the money in your wallet, pocket, or purse. Basically, her premise is that you must respect money in order to make more of it. 00;00;28;29 - 00;01;00;25 Shoving a wrinkled water bills into your pocket shows a lack of respect for its power and value. She was taught to organize bills neatly flattened, and by dollar value, the 20s would be together, then the tens and so on. All bills would face the same way. By doing this, she says that you're respecting money, giving it a valued position in your world, and that this one small organizational practice will help you make more money. 00;01;00;28 - 00;01;30;15 Whether you agree and decide to make your money neater or not. It's a good entry into our discussion about your real estate investing business. You need to get at least a minimum level of organization and record keeping in order to reduce confusion and errors. Organizing and automating your business practices and activities will make them move more smoothly. You'll spend less time, offices, and more time doing the business of real estate that generates cash flow. 00;01;30;17 - 00;01;55;08 You'll also think more like a business if you're in an organized and business like environment. We're talking about more than just being organized in order to save time and reduce management hassles. We're also talking about taking on the early attitude that your business is going to grow quickly. You've set goals and you intend to meet or exceed them on a schedule. 00;01;55;11 - 00;02;19;23 You realize that you will need automation and organized business practices before you know it, so why not just start it right in the first place? Of course, with one rental property, some of these methods and tools will not yet be necessary. However, one property isn't your goal, and you'll soon need to address these organizational and automation tools and procedures. 00;02;19;25 - 00;02;44;09 The Home Office. Most new real estate investors do not need a commercial office space or the expense that goes with it. A home office space can work for a long time if it's well organized, and allows you to concentrate on your job without too much distraction. You must be able to access key information without a lot of wasted time searching for it. 00;02;44;11 - 00;03;07;02 Hey, Scott, where is that box with all those receipts? Well, Michael, look over in the corner at our new two drawer filing cabinet. After that, rent check went missing for a couple of days last month. I thought a little more organization would help. You'll be spending a lot of time in the field anyway, but you do need an organized space for the business functions. 00;03;07;04 - 00;03;30;18 Well, you can work on the kitchen table and a lot of people start that way. You'll still need a place for files, blank forms and applications, and general business and financial records. If you have a separate room, no matter how small, to dedicate as an office space, organize it for efficiency. We like a neutral color to aid in concentration and get us in the working mood. 00;03;30;20 - 00;03;57;18 That's more difficult at the kitchen table and a brightly painted or a busy family space. Office equipment. Spend a little money and invest in reliable office equipment. As the world becomes more automated and online, you'll find that your computers and online access are major and valuable tools in your marketing and management functions. And worth the small expense. Think about when you can leverage the cloud whenever possible so you don't need physical hardware devices. 00;03;57;22 - 00;04;22;27 You can use the cloud devices wherever they are. Computer computers have come a long way and they continue to evolve very quickly. Some of the best ones with the most capabilities are very affordable these days. With the path of technology. Pricing for a great laptop has become affordable for most businesses. Consider your budget and get the best you can afford. 00;04;22;29 - 00;04;48;20 Printer scanner these days, an all in one printer scanner machines are common and inexpensive. They do it all in one box and take up little space in the home office. The most inexpensive are the color inkjet printers, but the trade off for the low purchase price is the cost of ink. It's like the old business adage of selling the razor cheap, so you can keep selling the razor blades in the future. 00;04;48;22 - 00;05;10;20 Moving up in cost by a couple hundred dollars, you can get a faster printer in black and white only with a laser machine, and that will still do all of the other things. Toner for lasers is less expensive because you get more copies per dollar than with ink or ink jets. They also generally print, scan, and copy a lot faster than an inkjet machine. 00;05;10;22 - 00;05;33;22 With the number of hard landline phones shrinking and more cell phones on the planet per people. You may not want to pay for a dedicated phone line in your home or your business. We know your cell phone will work just fine, and there are many great cell phone apps out there, often for free, that will act as a scanner and scan the documents right up to the cloud or your computer, or wherever you want. 00;05;33;24 - 00;05;59;14 You might not even need a printer because documents can be signed all online now. So really check out what technology is available for your needs. Filing and furniture. Your desk shouldn't be overly expensive, but it should be functional and not make your work more difficult. A comfortable chair and a desk with everything you need. Within reach are two important office items. 00;05;59;16 - 00;06;21;19 A filing cabinet is a must, and think ahead. While a two drawer cabinet is enough at the beginning and it's less expensive. A four drawer is planning ahead for growth. You'll spend a little more at the beginning for the four drawer cabinet, but you won't be getting rid of an old one and buying another one later. Your filing system. 00;06;21;21 - 00;06;52;02 Some experts are paid fat consulting fees to come into corporate offices and do time and motion studies. They watch employees and record their every movement during the day. They develop time records for every task, particularly for retrieving information and filing their reports, recommend changes to the system that save time and often millions of dollars for the company. You'll want to save time as well, but you'll also want to reduce the stress and hassle of running a business. 00;06;52;05 - 00;07;16;12 Having your documents and everyday materials filed properly is critical for this, as you'll be doing a lot of communicating by email. There will also be documents all over your computer's hard drive or your cloud drive. It will be helpful for you to think of your computer as a filing cabinet, and have roughly the same filing system in each your computer and your physical hard copy files. 00;07;16;14 - 00;07;44;01 In other words, you'll probably have this box with file drawers in the corner of the office. Dedicate one master folder on your hard drive or your cloud drive as your business file cabinet. You can even name it that my business filing cabinet. As you build your folders and subfolders in your real filing cabinet. You can have duplicate folders in your digital filing cabinet because you'll be receiving many documents digitally. 00;07;44;04 - 00;08;03;24 While you might print some out for your physical file or you might not. Let's save some trees. You'll also be able to access them the same way on your computer, and if you really want maximum efficiency, you could go completely paperless. Keep everything in digital form on your computer or I recommend in a cloud drive so you have backups. 00;08;03;27 - 00;08;25;17 That way, anytime you need a file, you need to send something or receive something. Everything is quick and easy and digital, and you can probably even do it right from your cell phone. A place for every scrap of paper. Michael, I've been looking for that plumber's receipt for an hour now. I thought I threw it into the contractor shoebox, but it's not there. 00;08;25;19 - 00;08;46;27 That's not as long as I spent last week looking for the hardware store receipt to return some floor tile building and digitizing your filing system as a first priority will save you a huge amount of time in the future. We ramped up our property purchases and rentals a whole lot faster than we did our organization and filing system, and it was a mess. 00;08;46;29 - 00;09;10;26 Learn from our mistakes so you don't have to set it up right from the first day. If you don't take the time to organize your filing system from the beginning, you'll be kicking yourself at tax time. Any time you save. Not setting things up properly will cost you ten times when you have to organize for taxes. We're here to teach you this and help you learn from our mistakes. 00;09;10;28 - 00;09;32;12 We've developed a filing system that is extremely simple yet gets the job done. Now, this following system can be a full paper system with the manila folders, or it can be a full digital system that will live in your cloud drive. We're going to give you the infrastructure and the system, and you decide how you want to administer it. 00;09;32;14 - 00;10;06;24 You'll have your normal file folders for the general business documents, those that are not related to a specific property. For each property we own. Here's our structure with the master file and subfolders. The master file. The property address. The subfolders are tenants, utilities. Taxes. Mortgages. Insurance. Repairs and maintenance, capital expenditures, city and legal. We create a master file for each property. 00;10;06;26 - 00;10;33;02 The subfolders in that file break out the various components and functions of property ownership and management for easy access later. Doing it this way, you will have a place for every piece of paper or digital document. Build the file and subfolders when you buy the property, and you'll always have a place to put documents and receipts. Tenants. Every new tenant requires a subfolder in the filing system. 00;10;33;04 - 00;11;16;26 These folders reside in the tenant section of the master property file. Tenant subfolders should include, at a minimum, the following their rental application. Lease agreement reference and guarantor information Lisa owned contracts or other tenant agreements. Notes about anything you know in reference to this tenant, including a pets name, relative, close friend, favorite movie, etc.. Enforcement actions you take against the tenant, or late rent records complaints for legal reasons, and you'll probably have state or provincial landlord tenant requirements here. 00;11;16;29 - 00;11;45;28 You'll want to keep these individual tenant files for 3 to 5 years or more. You can remove the folders as tenants move out and put them into other areas of your filing system, but keep the tenant files oriented to the property. Utilities, taxes, mortgages, and insurance. You could further subgroup utilities into electrical, gas, etc. if you like. I find this a little too granular and not necessary. 00;11;46;00 - 00;12;12;21 You need this information, however, for your taxes, so make sure you have it close. Mortgage information would include annual interest paid statements and any notices or other communications you receive from the lender. If you refinance, maintain a separate folder for the new mortgage. Taxes and insurance files are important, and you'll want to have all tax ID numbers and insurance policy numbers handy when you need them. 00;12;12;23 - 00;12;40;16 You'll probably receive periodic tax assessor notices to place in the tax file. Also, be sure to file insurance policy premium notices and proof of payment, repairs and maintenance. This is the one folder that can get quite large and is often broken down into subfolders over time. It's also the one that you'll use a lot. It will save you a huge amount of time when taxes are being calculated to have everything organized in one file. 00;12;40;19 - 00;13;05;15 All of those small receipts from hardware stores need to go into this folder. It's those small pieces of paper that are often misplaced, and they add up to a whole lot of money each year. Now check with your tax advisor to see if it's okay to digitize these receipts. That way you can scan them with your phone, put them right into your cloud drive, and you don't have to deal with all these tiny little pieces of paper. 00;13;05;17 - 00;13;30;00 Either way, you'll want to divide this folder and these expenses into whether an item is fully deductible as an expense that year, or a capital expenditure that must be depreciated over time. Generally, if it's a property improvement expense, it would go into capital expenditures. If it's a repair or some maintenance, it would go into repairs and maintenance. Your tax accountant can help you decide what's what. 00;13;30;01 - 00;13;32;13 Here. 00;13;32;15 - 00;14;00;28 While repair and maintenance files can be separated by year and previous years, filed away elsewhere after your taxes are complete, capital expenditure files and documents. Stay with the property forever or until you sell it. When you sell it, these expenditures are part of the valuation and tax calculations, city and legal documents. This is another document category that doesn't change or become less useful at the end of the tax year. 00;14;01;01 - 00;14;32;07 These are documents that have value and may be needed again for as long as you own the property. For example, building permits, financing documents, city letters and notices, fire reports, inspection reports. These permanent files should be available for the life of the property ownership, and will stay into the cabinet or file until we sell the property. They then get archived so we have a record for them all time. 00;14;32;10 - 00;14;57;09 The others, the ones that are useful each tax year, can be moved into a banker box at the end of the year and stowed away. Or of course, if you're digital, you can just put them into an archive file for that tax year. Your tenant records the customer is always right, unless they aren't. Our tenants are our customers, and as long as they pay their rent on time and occupied by the rules, they're right. 00;14;57;09 - 00;15;19;20 And we want to make every effort to keep them happy. If they break the rules, annoy other tenants, don't pay a rent, or don't pay on time. Then we want to take the appropriate actions in order to really know how we want to interact with a certain tenant at any time. We need to have good records that will provide the information we need when we need it. 00;15;19;22 - 00;15;38;17 If our records show that tenants have been excellent in every way for many months and they come to us with a request or a complaint, will be more likely to work with them and make them happy than if they've just been a source of problems. This approach works well only if our records are complete and easily referenced when we need them. 00;15;38;19 - 00;16;05;02 The tenant spreadsheet. The spreadsheet format is great for this type of record keeping. While it's a bit tedious to enter the items each month when you need to access the information, it's right there at your fingertips, all in one page. You can use a cloud based program like Google Spreadsheets or Microsoft Excel. If you want some of these free online resources, you could create ten spreadsheets with the following information. 00;16;05;05 - 00;16;32;26 Tenant. Name. Rent amount. Amount. Collected amount they owe you lease, start date, leased end date, and any notes. Go into the sheet each month and update it. A quick sort by leasing ending date will give you an immediate warning of leases coming up for renewal. Checking the notes. We'll let you know if you want to keep the tenant or not and how to handle the situation. 00;16;32;28 - 00;16;58;03 Using the tenant spreadsheet. Rent. When we get the first and last month's rent up front, we type the amount in the appropriate month on the spreadsheet, and we highlight those cells in green to indicate that the money has been received. We fill in the anticipated random out for the following months, but we highlight them in red until we receive the rent lease expirations. 00;16;58;06 - 00;17;24;01 We'll sort the sheet by lease end date, and we know leases ending within the next 60 days so we can take action if we anticipate losing a tenant or if we're not sure yet. We often begin our marketing to look for a new tenant right away. Late penalties. This isn't an income sheet for tax or budgeting purposes, so we don't need a column to record late penalties. 00;17;24;03 - 00;17;46;15 However, they should be in the notes column. We want to be able to readily see if tents have been late more than once, when their lease is coming up for renewal. Automate your business sitting down every month and trying to write checks for utilities and other monthly property bills will quickly become enormous. Headache and a time sinkhole. You don't want to do this. 00;17;46;17 - 00;18;19;05 The computerized world and the internet comes to our rescue again. In this area of business, the machines will automate everything for you. Automatic debits. Most of your regular utility and other billing accounts will offer to automatically debit your bank account for your monthly payments. This could be a huge time saver. Debit or credit card payments. Many utilities and large businesses that collect monthly payments, such as phone and cell phone companies, accept payments with debit or credit cards. 00;18;19;07 - 00;18;41;04 Having your bill automatically charged to a credit card adds a layer of protection. As you can dispute, the credit card charges if there is a problem. Also, cash back or rewards programs with credit card purchases are another benefit of paying this way. You can use a 1% cash back card for these bills. It's adding 1% to your bottom line. 00;18;41;06 - 00;19;06;10 If you earn rewards points, you'll get a nice trip out of paying your bills on time. Earlier in the book, we mentioned PayPal as a method to receive rent payments from your tenants. PayPal will offer a business account holder a debit card as well. If you indicate that it's a credit card, not debit, when you make a purchase, you'll receive 1% cash back to your credit account in some cases. 00;19;06;13 - 00;19;32;19 Online banking. Be sure to take advantage of your banks online bill paying system. You can simply go into the account and set up automated billing to electronically pay large vendors and utilities, or you can mail checks to smaller ones. Some of the systems will allow you to designate a monthly utility bill as having a varying amount. If you do, it sets up all of the steps of the payment process except the amount. 00;19;32;20 - 00;19;59;13 Each month, you simply go into the banking section, enter the amounts, and the bills get paid. Automatic tenant notifications and email communications. There are a number of systems and email software options that will allow you to schedule emails in advance. The emails will be released at the scheduled date and time without you having to remember or be involved after you've set them up. 00;19;59;16 - 00;20;19;02 We use lock boxes to allow new tenants to move in right behind old tenants moving out while we put the lock boxes on a weekend events, we let the tenants know they will receive an automated email the night before at 12:01 a.m. that gives them the code to the lock box. If they want to start moving in at midday, they can. 00;20;19;04 - 00;20;40;22 You can also set up automated emails prior to lease expiration to let the tenants know that it's coming up, and you can ask them to notify you if they know whether they want to remain in the unit or if they plan on leaving. Remember, automate to get your time back. Rent receipts. Most tenants will want to receipt for the rent that they've paid. 00;20;40;24 - 00;21;00;10 Even if you're accepting other payment methods such as credit cards or X. They'll receive email confirmation, but they'd like to have a receipt for their tax records. We like to go digital here as well. We use PDF files as an email attachment to send a paid receipt with our signatures. We don't want to send a word document or something. 00;21;00;10 - 00;21;23;26 They can edit easily, because the tenants can easily manipulate the file and show that they've paid rent when they haven't, or they've paid more than they actually have. PDF files are much more difficult to manipulate and more secure. We just pull up our standard receipt template in our Microsoft Word program. We change the date, we change the name and all the information to do with the rent, and then we save it as a PDF file. 00;21;23;28 - 00;21;47;12 Attach it to an email and we're done. This works great and the tenants have proof of payment. Duplicate yourself. As you grow, you'll reach a point where you'll want to hire an assistant. You'll want to set up your office systems, filing billing and tenant notifications so that it's easy to train someone else to use them. You can even get a virtual assistant. 00;21;47;15 - 00;22;09;07 Should you get really busy and need to hire a temporary office worker? You'll want a system that you can explain quickly so the assistant can jump right in and manage it. Action steps one. Begin to plan your office setup and buy whatever equipment you think you might need right now. Research the rest to get an idea of the budget. 00;22;09;07 - 00;22;33;26 You'll need to do an outline of your filing system. Or better yet, goal by the folders or set up the digital system. Now for your first property. Just leave the front part of the master file empty for the property address. If it's digital, you can call it my first property. Three. Research how you want to handle a bank account. 00;22;33;27 - 00;22;45;20 Billing, accounting and tenant notifications. What's next? Next, we're going to complete the third and final stage of building our success team.