Real Estate Bookkeeping: How To Manage Your Finances

Key Takeaways

  • Bookkeeping for real estate investors is an important activity that helps business owners stay on top of their finances.
  • Every real estate investor should care about real estate bookkeeping because it is a powerful tool that allows you to measure the health of your business, as well as the performance of individual jobs.
  • Technology today has made electronic bookkeeping easy to incorporate into your day-to-day activities.

Real estate investors come from all different walks of life. While some may have a background in finance and real estate, others are more comfortable with technology and the trades. Whatever your background is, you need to have a good grasp on where your money is going. Negligence doesn’t favor any investor, regardless of where they come from. Business finances, however, can be a difficult aspect of the investing world that not many are familiar with. Between terminology and the complex nature of numbers, accounting can get pushed to the side. That said, you need to address your finances. Proper real estate bookkeeping is one of the most, if not the most, important factors of your business. If you want your company to grow and run smoothly, you need to stay on top of finances – business and personal.

What Is Bookkeeping For Real Estate Investors?

Bookkeeping for real estate is an important activity for investors who hope to keep their finances in order. In finance and accounting, bookkeeping is defined as the recording of each and any financial transaction that occurs through a business. According to Accounting Coach, this can include anything from purchases, sales and payments, and should be recorded on the date that each item occurs. Another important aspect of bookkeeping is ensuring that there is a record, whether paper or digital, to accompany each and every transaction recorded on a ledger. Read on to learn about the various advantages of bookkeeping for real estate.


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Bookkeeping for real estate investors

Why Every Investor Should Care About Real Estate Bookkeeping

Personal financial literacy – and the best way to go about real estate bookkeeping – are two of the most neglected topics in our country. With the way bill paying has evolved, fewer people – especially young adults – do not know how to balance a checkbook – let alone run a business. Fortunately, the first step in improving your finances is an easy one: learn as much as you can about them. This means reading, watching the news, or attending as many educational events as you can. It may seem like a foreign language at the beginning, but many of the concepts are really quite simple. Investing in the stock market or overseas markets can become a blur, but basic principles are relatively easy to comprehend. It may be difficult to accept that you don’t know as much as you would like, but you are never going to learn about the business and your finances unless you do something about it.

You should commit just 30 minutes a day to reading or watching something about finance. This doesn’t mean you have to wake up every morning and watch CNBC, but even a generic finance article will help. You will find that once you start to dig in, finance is really quite basic. In a nutshell, it is all about expenses in your relation to what you are bringing in. If your expenses exceed your income, you are in trouble. In big business, raising or reducing costs by just a few cents can equal millions of dollars. In your business, or in your household, there are probably hundreds of dollars you can shave off your expenses every month. You just need to know where to look.

A good exercise to track your spending is to use a dedicated debit or credit card on all expenses for 30 days. If you use this for everything, from coffee to rehab materials, you will get a true idea of where your money is going every month. At the end of the 30 days, you should sit down and review what expenses were used to grow your business and which were essentially a waste of money. You can use this to pay any and all bills you have as well. There are many expenses in business and personal life that we make solely because we have been doing it this way for a while. Little things like looking at a cable bill or consolidating credit card debts can greatly reduce a monthly payment. Doing this on one card will not move the needle, but making several moves can change the direction of your financials.

Proper bookkeeping requires a plan of attack. However, you need to be willing to stick to it. It is one thing to have a list of items you are going to pay after a closing, but another thing to actually do it. Once you get a check and have the money in hand, it is tempting to deviate from any plan. There is a certain degree of discipline that is needed when running a business. Instead of looking for short term satisfaction, you should stop and think about the big picture: reducing debts and adding equity. It sounds simple enough, but you should always think of what you are really getting for each expense. This isn’t to say that you shouldn’t reward yourself for a job well done, but you can’t do this on every deal.

It is almost impossible to be a successful investor if you don’t know where your money is going or coming from. You don’t need to be a financial wizard, but you should have a basic understanding of debits, credits and all expenses. If you just glance at your books once a month, you very well could be throwing away money. Knowing what is going on with the numbers can be boring, but it is the only way to really know what is going on. By taking the time to educate yourself and spending a few minutes a day staying on top of your numbers, you will make your finances work for you.

Bookkeeping for real estate

Real Estate Bookkeeping Benefits

  • Business Metrics: Real estate bookkeeping is not just an exercise to record financial transactions, but an important way to measure the performance of your business. Review your ledgers on a quarterly, or even monthly, basis to review the state of your business’ financial health.

  • Job Performance: Your books can be used to evaluate the performance of specific jobs, and not just your business as a whole. Is your renovation crew sticking to the various budgets that you defined in your scope of work? By keeping a separate spreadsheet for each property, you can quickly evaluate whether or not you are staying on track.

  • Tax Preparedness: Come tax season, you will be grateful that you already have a system in place for keeping track of all of your financial transactions and documentation.

  • Cash Flow Awareness: Keeping track of live data on your transactions can help you stay atop of your finances, and ensuring that your spending does not exceed your monthly income. Mentioned above, organizing separate spreadsheets for each property can help you identify which properties are providing a healthy cash flow, as well as those who are eating into your profits.

  • Credit Score Management: Setting up an efficient bookkeeping system can insure that you pay invoices and credit card balances on time, and in the correct amounts. By avoiding late or incorrect payments due to disorganization or oversight, you will have a better chance of protecting your credit score.

Real estate bookkeeper

Online Bookkeeping 101

If the above image looks confusing to you, do not worry, for you are not alone.

With the improvements in today’s technology, real estate bookkeeping has gotten substantially easier to do the help of online resources.  If the idea of managing your accounts by hand intimidates you, consider an accounting system like Xero Online Accounting, Sage 300, or Intactt – all highly recommended by other real estate investors.  By law, it is required that businesses keep up to date and standardized records of all money going in and out of their company. Online bookkeeping keeps a more accurate track of daily expenses so that you have one less thing to worry about – similarly to the way a virtual assistant would be helpful.

Organization is KEY to the bookkeeping process, which is why online tools are more beneficial. Especially with complicated real estate transactions, it is best to capture as much information about the deal as possible then let your computer do the sorting.  90 percent of entrepreneurs fail and – as you are probably aware – poor accounting is a primary reason.  Don’t allow yourself to fly blind, switch to paperless accounting today.

Whether you prefer to keep track of your finances yourself, through an online system, or with the assistance of an outsourced accountant, keeping up to date with your real estate bookkeeping is an activity that is imperative to monitoring the financial health of your business. With user-friendly accounting solutions made available to businesses of all shapes and sizes, there is really no excuse not to get started today.

What is your favorite bookkeeping tool? Feel free to discuss the pros and cons below:

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Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies
Real Estate Investing Strategies