Real estate bookkeeping is one of those necessary evils that many do their best to avoid. It’s not fun, and unlike prospecting, it doesn’t help you bring in new clients.
No, but it does help you pay all of your bills on time – and reduce the number of dollars flowing out to the IRS.
That’s why, when Tamara Marquis sent me a connection invitation on LinkedIn, I said yes – and invited her to write a guest post. Note that she offers advice for both real estate agents and real estate investors. You may be both!
The Importance of Real Estate Bookkeeping
By Tamara Marquis
Working and investing in the real estate industry can be fast-paced, profitable, exciting, and rewarding; it can also be worrisome, confusing, and a little stressful if you don’t know your financial position, don’t know each property/project’s return on investment (ROI), or can’t pay all obligations on time. Real estate professionals usually have themselves involved in more than one project at a time which involves many different operational tasks, and with bookkeeping’s repetitive, mundane and tedious tasks, it is something that most in the industry have every intention of getting to “Later.”
It does not matter if you only close a few deals a year or if you’re closing multiple deals a month. It is important to stay on top of where every dollar is coming from and going to. Proper bookkeeping for real estate professionals is an essential component to running a successful operation!
Why You Need Excellent Real Estate Bookkeeping Records.
- Compare your growth (or lack of growth) from month-to-month and year-to-year.
- Keep track of key performance measurements such as profit/loss, cash flow, and net worth.
- Manage cash.
- Track what business strategies actually worked.
- Analyze which properties perform better than others.
- Prepare yearly tax returns.
- Save money on tax preparation because information is already organized correctly.
- Avoid extra time and stress digging up information in case of an IRS audit.
- Avoid potential IRS penalties.
- Pay all your obligations on time as agreed.
- Raise capital using data from past performance.
Steps to Successful Bookkeeping
- Keep Everything Separate: Make sure you keep all of your personal income and expenses separate from your business’s. Set up a separate banking account and credit cards for your business. It is advisable to have a separate account and credit card per property, if you have multiple properties.
- Keep Track of Receipts and Important Documents: It is very important to keep track of every receipt and document what the receipt is for and what property or project the expense is for. It is also important to keep track of all invoices, bank/CC statements, tax returns, insurance information, and contracts. This information can be either kept in hardcopy or digital form.
- Itemize All Business Income and Expenses: All the money that comes in or goes out of the business has to be categorized and tracked, and this can be done through accounting software such as QuickBooks or a spreadsheet system. It is best to categorize the income and expenses into the same categories that the IRS lists on schedule E which are:
- Auto and Travel Expenses.
- Cleaning and Maintenance.
- Legal and Other Professional Fees.
- Management Fees
- Mortgage Interest Paid to Banks etc.
- Other Interest new Repairs.
- Depreciation Expense
- Reconcile Accounts Monthly: When you get your bank/CC statement each month it is necessary to make sure the information in your bookkeeping records matches up with what your statement says, and if there are discrepancies locate what they are and rectify them.
Overall, real estate bookkeeping and accounting have a lot of different regulations and it is advisable to consult with a financial professional that specializes in the real estate industry.
The Balanced Books LLC specializes in working with real estate professionals and is available to have a quick 15-minute strategy session to discuss your bookkeeping needs and options. You can schedule your free 15 minutes strategy session here.
Image courtesy of Pong at FreeDigitalPhotos.net