You can improve efficiency and organize your real-estate financial operations with good accounting practices. These practices can also help you save money and reach financial independence.

Bookkeeping Practices for Real Estate Businesses

These are the top ten practices that successful real estate investors worldwide follow.

1. Incorporate a system

Although it’s not something that is common, the implementation of an accounting system cannot be overlooked. You can contact software vendors to have a custom-made software package created for you. If you feel that you could use a system already on the market, which we HIGHLY recommend, you can go ahead and work with a software provider such as QuickBooks or Xero. Both accounting software providers offer robust marketplaces that simplify and increase the automation of managing your company’s finances.

It doesn’t really matter what system you choose, as long as it serves its purpose. An accounting system can be a great tool for your investment business. It will allow you to let someone else handle your finances while you focus on closing deals and driving the business forward.

Mindspace Outsourcing is always available to assist you with any aspect of managing or setting up your real estate accounting process.

2. Use Separate Bank Accounts

Multiple bank accounts are a must for successful real estate investors. Trusts and LLCs are also used to protect themselves from all kinds of liabilities. Many investors also recommend opening business credit cards and opening bank accounts for business. This strategy allows you to clearly distinguish between business and personal activities. This practice allows you to easily track your transactions. Each LLC and each property should have its own bank account.

3. Keep your receipts around

Accounting is all about keeping records. It is useless if you don’t have a receipt. Investors use folders to store their receipts. It is highly recommended that they be online. Make a spreadsheet and enter the dates, amounts and details of each expense. After the records have been uploaded, scan the receipts electronically – you can even do it from your smartphone. This will make it easier to pay taxes later.

Here at Mindspace Outsourcing, we specialize in leveraging technology to help our client’s setup processes to help automate the indexing of receipts.

4. Monthly Reviews: Don’t Forget

It is not a good idea to go through your records and find unusual charges that you don’t know. We recommend that you do monthly reviews of your income statement to avoid such situations. You should also review your overall financial position (e.g. Balance sheet) monthly to keep track of your assets and liabilities, and especially your cash balance. To ensure that your financials are completed in the same manner every month, we recommend setting up a standard procedure with your real-estate bookkeeping.

5. Learn how to outsource

Investors with smaller portfolios may be able to do their own accounting. As you acquire more properties, or increase the size of your portfolio, you will likely need to outsource due to the time commitment. You need to know how to find a dedicated CPA to handle your accounting needs. This will enable you to do more and concentrate on revenue-generating activities.

Contact us here if you’re interested in a complimentary consultation regarding outsourcing real estate accounting. One of our bookkeeping experts will contact you within 24 hours.

6. Learn the Cycle

You need to know where your money is coming from and how it is being spent. Being able to see the details of your finances will help you make informed decisions when it comes time to analyze deals.

7. Embrace Technology

You need to implement a system, as mentioned in the first heading. The software has advanced so much that it is now unacceptable to have no accounting software (Quickbooks or Xero). Additional apps such as Bill.com or Expensify can make bookkeeping easier. These or similar technologies are highly recommended to make your life easier and to give you real-time information about your properties regardless of where you live.

8. Keep your data safe

Accounting is important for financial performance, but it can also impact the actual business performance. You can use key information from your accounts to make informed business decisions regarding your real estate. This information will include the performance of an investment property, average revenue generated, debt owed, occupancy rate and other key performance indicators. These are critical information that will help you close more deals and allow you to extract the maximum profit from your investment properties.

9. Be on the lookout for errors

In real estate, errors can be costly in both time and money. If done correctly, most errors should be detected immediately during your monthly review. Like most things, mistakes are inevitable. If you have consistent, predictable and timely real estate bookkeeping procedures, you can reduce the impact on your bottom line.

10. Conduct Audits

Investors in real estate with smaller portfolios may be able to view their key performance indicators (KPIs) on their own. A single person can view outsourced accounting contracts. However, if you have a team that manages your accounts, sends in invoices and handles payments, you will need to conduct audits once in a while. Although you won’t be required to do this every day, it will help keep your team motivated.

Conclusion

Consistent and reliable bookkeeping in real estate will ensure that you are on the right track to financial success as an investor. Both accounting and business practice are interrelated and cannot be done without the other. You will have confidence in all aspects of your business if you follow the above-mentioned practices.

Real estate investors often consider bookkeeping an afterthought. It should be the core of your business. If you are able to commit the time and energy necessary to follow the accounting guidelines, please do so.

If you’re like most people and prefer to spend your time on revenue-generating activities, we recommend that you outsource this task to a real estate bookkeeper who is experienced in dealing with real estate investors.

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