{"id":21068,"date":"2024-05-10T11:33:12","date_gmt":"2024-05-10T18:33:12","guid":{"rendered":"https:\/\/www.rentecdirect.com\/blog\/?p=21068"},"modified":"2024-05-10T11:33:16","modified_gmt":"2024-05-10T18:33:16","slug":"how-proper-documentation-can-protect-your-real-estate-investments","status":"publish","type":"post","link":"https:\/\/www.rentecdirect.com\/blog\/how-proper-documentation-can-protect-your-real-estate-investments\/","title":{"rendered":"How Proper Documentation Can Protect Your Real Estate Investments"},"content":{"rendered":"\n
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Investing of any kind can have a share of risk, and real estate is no exception. For this reason, savvy investors know how to document and protect their real estate investments to ensure long-term ROI. From proof of ownership to tax documents, keeping vital details of your investment is critical to your success.<\/em><\/p>\n\n\n\n

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Because investing in real estate can be risky, it\u2019s critical to do everything possible to protect yourself. You\u2019ve already done your research and chosen the best investments for your goals and interests. Now, it\u2019s time to make sure you\u2019ve taken the proper steps to safeguard your legal, financial, and regulatory rights. Here are the six types of documentation you need to protect your real estate investments<\/a>.<\/p>\n\n\n\n

1. Proof of ownership<\/h2>\n\n\n\n

Proof of ownership is arguably the most important document in any real estate investment. It\u2019s foundational in modifying, utilizing, or disposing of a property. Two documents solidify proof of ownership.<\/p>\n\n\n\n

Title deeds<\/h3>\n\n\n\n

Title deeds serve as the most definitive proof of ownership. They cite the owner\u2019s legal name and provide details about the property, including where it is located and what it is. In addition to a statement attesting to the property’s boundaries and size, easements are also listed on these. A title deed is registered officially at closing and sent directly to you afterward.<\/p>\n\n\n\n

Purchase agreements<\/h3>\n\n\n\n

This document outlines the terms and conditions under which the property was purchased. If there is any misunderstanding with a seller regarding the terms of the sale, this document can verify the original conditions.<\/p>\n\n\n\n

Contracts<\/h3>\n\n\n\n

Contracts are legal agreements made between vendors or service providers. They might include agreements with real estate agents or listing services<\/a>, home warranties, utility providers, or any suppliers who provide goods to your property.<\/p>\n\n\n\n

Leases<\/h3>\n\n\n\n

A handshake deal won’t cut it if you have tenants or otherwise lease a portion of your real estate. Some tenants have sued landlords<\/a> and won based on inadequate leases that did not clearly spell out which party was responsible for what. A comprehensive lease protects both the tenant and investor.\u00a0<\/p>\n\n\n\n

Zoning\/compliance<\/h3>\n\n\n\n

If inspections or use permits are required for your investment property, these documents can protect you against use restrictions, fines, and forced alterations. They lay out the permissions you need to use your property and ensure you meet local regulations.<\/p>\n\n\n\n

Covenants and conditions of use<\/h3>\n\n\n\n

Covenants are typical in properties governed by a homeowners association (HOA). They are specific to that specific property (and thus not exactly the same as zoning, which is often applied across a broader area, like a town, city, or state). Keep a copy of any covenants related to your investment property.<\/p>\n\n\n\n

3. Financial documents<\/h2>\n\n\n\n

Financial documents keep you on track and help you meet your financial obligations. Keeping these in order means you have a clear picture of your finances and can plan your next investment when the time is right.<\/p>\n\n\n\n

Loan documents<\/h3>\n\n\n\n

It\u2019s easy to shove that big closing packet in the back of a file cabinet and forget about it, but those loan documents have important information about your loan’s terms, rates, and payment schedule. These numbers are directly related to the value of your property<\/a> and can be useful when it comes time to sell.<\/p>\n\n\n\n

Escrow agreements<\/h3>\n\n\n\n

Earnest money is held in escrow when a property sale is in progress. The terms of this account may vary, so maintain a copy of your escrow agreement to keep track of your rights and responsibilities.<\/p>\n\n\n\n

Insurance policies<\/h3>\n\n\n\n

Let\u2019s be very clear: Insurance is not an optional expense. It\u2019s required to some degree in every state in the U.S., and it\u2019s just good practice to protect your investment. Review the terms and any rate increases when your policy renews every year to ensure you\u2019re fully covered.<\/p>\n\n\n\n

4. Tax documents<\/h2>\n\n\n\n

Careful investors can make a lot of money, much of which can evaporate when it comes time to sell if you don\u2019t keep your tax documents. <\/p>\n\n\n\n

Property tax receipt<\/h3>\n\n\n\n

Property tax is deductible for investment properties, a bonus that allows you to keep more of your rental income. Keeping a record of property tax payments makes it easier when tax time rolls around.<\/p>\n\n\n\n

Rent receipts<\/h3>\n\n\n\n

Yes, rental income is considered income, so if you collect more than $600 in rent annually, you must be prepared to claim it on your taxes. Keep copies of checks or any form of digital rent payments you receive. This goes both ways \u2014 if you pay any rental fees related to any investment property, these are deductible.<\/p>\n\n\n\n

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Learn more: Landlord\u2019s Guide to Tax Deductions<\/a><\/p>\n<\/blockquote>\n\n\n\n