Anyone that has a credit card or access to a line of credit knows how quickly debt can add up. It may be hard to believe, but most people in business, especially real estate investors, do not have a firm grasp on exactly how much they are spending every month. The economics of the real estate industry elude even seasoned investors. They may have a roundabout idea, but when asked to break their spending into specifics, they cannot. There is nothing that will eat away at profits quicker or stunt businesses growth faster than not controlling spending. If you spend more than you make, you will not last very long. Tracking spending is an overlooked key to experiencing real estate investing success. Make sure you are taking the appropriate steps to manage your expenses.
Most people have an idea of what their monthly household bills are. You should keep the same diligence in knowing what your investment business expenses are. Simply paying the bill online or sending out a check every month is not all that is required. You need to look at every receipt and record every invoice. You should know what seasonal expenses to expect and how often they will occur. If you look closely enough, you will often find ways to save money or eliminate certain expenses all together. A little on each bill or expense can add up to a few hundred dollars every month. Over the course of a year, you could be talking about thousands of dollars.
It can be very difficult to know if you are getting a good quote or a good deal if you do not know how much things cost. You should make it a habit to record every single expense, regardless of amount, for 30 days straight. At the end of the month, look at your statement and see what you have. It can be very eye opening when you notice how much you spend on miscellaneous items or items that you pay blindly (insurance) without even questioning it.
Very few people enjoy looking at their bills or coming up with a budget. It may not be enjoyable, but it is a necessary evil. Your expenses should be used for items that will create some value down the road. If you are spending your money to take your business partner out for lunch 3 days a week, you are not getting any return. Maintaining or improving systems is a good expense, as well as developing your network. You should never be shocked at the end of the month or after a deal closes to see you have considerably less profit than you thought. If you track all of your spending, you should know within close proximity exactly what your bottom line will be.
Money in minus money out is a quick calculation for determining profit. Many investors will spend hours plotting how they can increase their income without thinking about how they can reduce spending. Your expenses make up half of your bottom line and should be given the same time consideration as bringing new money in. Spending can leave you working just to break even on a deal. If you do that a few times, you will eventually lose interest in the business or run out of money.
Tracking your spending is an important part of the real estate investing process that is not given nearly enough time. It starts with knowing exactly what is going out and then taking action to lower it. Your spending holds the key to the success of your investing business.