Have you ever watched a football game and just listened to all the statistics the reporters give? It’s so fascinating to me to hear how many yards so and so has thrown, or how many yards so and so has ran. How about how many tackles so and so has had for his entire career? I often wonder where do they get this stuff. Like who is actually keeping track. I guess this is a topic for research later.
This article certainly is not about football statistics and where they come from. This article is written to help you see the importance of keeping track of your books and records for your real estate business. Did your heart just skip a beat? Don’t worry, this is not a difficult process and I’m going to walk you through it. It will be like watching a football game. Ok, maybe a little more difficult than that.
LET’S START WITH THE WHY?
If you’re like me, you need to know the “why” behind things in order to move forward effectively. Before we begin, I want to point out that this article is about your real estate business books, not your personal finances from your real estate business. These are tracked differently.
To have records to compare your growth over time.
Manage your cash flow
To know whether your marketing plan is working or not
To keep track of your KPIs (Key Performance Indicators)
Analyze which rental properties perform better than others (so you can sell some and keep others)
Okay, you get the WHY. Now, let’s get into the HOW.
Keeping accurate books doesn't have to be a daunting task. Think of it as building your own set of "real estate statistics," just like those football analysts!
1. Set Up Your System:
Choose Your Weapon: Will you use spreadsheets, accounting software (like QuickBooks Online or Xero), or a specialized real estate bookkeeping platform? Choose what works best for your comfort level and business complexity.
Separate Business and Personal: As mentioned earlier, this is crucial. Open a separate bank account and credit card specifically for your real estate business.
Chart of Accounts: Create a clear chart of accounts tailored to real estate. This might include categories like:
Rental Income
Property Management Fees
Repairs and Maintenance
Mortgage Interest
Property Taxes
Insurance
Depreciation
2. Consistent Record Keeping:
Receipts and Invoices: Keep every receipt, invoice, and document related to your real estate transactions. Consider digitizing them with an app.
Record Transactions Regularly: Don't wait until the end of the year! Schedule regular time each week or month to record transactions.
Track Income and Expenses: Meticulously record all income (rent, sales) and expenses (repairs, advertising, etc.).
3. Key Reports and Analysis:
Income Statement (Profit & Loss): This shows your revenue and expenses over a specific period, revealing your profitability.
Balance Sheet: This provides a snapshot of your assets, liabilities, and equity at a specific point in time.
Cash Flow Statement: This tracks the movement of cash in and out of your business.
Property-Specific Reports: Generate reports for each rental property to analyze its individual performance.
4. Key Performance Indicators (KPIs):
Occupancy Rate: Percentage of occupied rental units.
Cash Flow Per Property: Net income after all expenses.
Return on Investment (ROI): Measures the profitability of your investments.
Debt-to-Equity Ratio: Indicates your financial leverage.
5. Consider Professional Help:
Bookkeeper or Accountant: If you feel overwhelmed, don't hesitate to hire a professional. They can help you set up your system, maintain accurate records, and provide valuable financial insights.
Remember, knowledge is power. By keeping accurate and up-to-date books, you'll gain a clear understanding of your real estate business, make informed decisions, and ultimately achieve greater success. Just like a football coach analyzing those statistics, you'll be able to strategize and win!
What bookkeeping challenges do you face as a real estate investor? Share your questions and experiences in the comments below!
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