The prospect of investing in real estate and growing your property portfolio is certainly exciting, but what many don’t realize is that property investment is much more difficult than one might expect. While managing and owning your own property portfolio can reap financial rewards, it is very much like running a business. Just like with any business venture, maintaining accurate financial records is essential for anyone investing in real estate.
Although the process of bookkeeping isn’t all that difficult, it can certainly be time-consuming. Staying on top of things and implementing a good system for bookkeeping can help investors understand their return on investment (ROI). Keeping track of the income from your property as well as any outgoings will help keep your investments profitable. If you are getting started as a real estate investor, here are a few bookkeeping tips to help you stay on top of your finances:
Keep Business and Personal Accounts Separate
One of the fundamental principles of bookkeeping for real estate investors is to start by considering your property to be a business and keeping business expenses separate from your personal costs. An easy way to do this is to open a new bank account and have a credit card registered in the name of your business or property. This will make it much easier to track cash flow in and out of your property account, along with the monthly revenue. This will give you a better idea of your business needs.
Tracking expenses can be time-consuming, but it will reap the rewards further down the line. Whether you keep a physical record or a digital record on Excel, it is important to have a record of every financial transaction the business makes. Having separate business accounts will make it much easier when it comes to tracking expenses and online banking will allow you to quickly copy this data over to an Excel sheet or to any bookkeeping software system you might choose to use.
Itemize All Income and Expenses
Along with keeping track of all your monthly expenses and income, you should also endeavor to categorize these correctly. This is especially important when it comes to filing your taxes. Categories you should factor in when organizing your books include: advertising, travel costs, cleaning and maintenance, insurance, legal fees and mortgage interest paid to the bank.
Make Sure Your Books and Your Bank Accounts Match Up
Errors regularly occur when comparing your financial records and bank account. This is why it is important to do a reconciliation to make sure receipts match the amounts debited from your business accounts. This is essentially an extra check of your records. It may feel tedious at times, but reconciliation is an essential part of the bookkeeping process.
Investing in property has the potential to be very lucrative, but it is by no means a get-rich-quick…