4 Perks of Good Bookkeeping for Real Estate Professionals
If you’re a real estate professional, you probably spend hours every month pouring over housing market reports and changing interest rates. Your business’s financial records deserve attention, too. It is your responsibility as the business owner to establish clear accounting systems with oversight and regular maintenance, whether the recordkeeping is done by you, an employee, or an outsourced accounting firm like BATS Xpress handles your complex bookkeeping needs.
It’s worth repeating the universal rule of managing any company’s money: keep your personal and business accounts completely separate. There are both legal requirements and rewards to not mix these accounts. With all that you are doing to run your real estate business, you may not be prioritizing the back-office work to set up “proper accounting systems and accurate bookkeeping.” Before sharing their Bookkeeping Tips for New Real-Estate Investors, RealtyTimes.com emphasized the importance of strong accounting practices. These are some of the biggest benefits to your real estate business.
Income for real estate agents and brokers is often more complicated than employees in other fields because it includes commission from every closed transaction. RealtyTimes.com advises “as the primary income source, real estate professionals must accurately track, supervise, and report all incoming cash sources.” You can learn about how your income fluctuates throughout the year (especially when there were specific home buying seasons before the pandemic) so you can prepare for slower periods.
Investors and property management companies can track the performance of the rental units in your portfolio. Then you can use the “historical data to make future investment strategies.” You can only minimize losses by promptly following up with tenants who are behind on rent before their balance owed gets out of hand.
Motley Fool notes that “almost every expense that you can tie to your real estate investing can be deducted, i.e., written off,[...but] many rental owners don't do enough to maximize tax savings” by consistently categorizing financial transactions. “When you [subtract] expenses from your income, your taxable income reduces as you have to pay less tax every year,” explains RealtyTimes.com. “If you don't categorize your expenses from the beginning, you won't know which ones to deduct from your income.” Even worse, if your records aren’t accurately itemized, it may trigger an audit of your tax returns. “Expenses” for a real estate business may include mileage to properties, license fees, continuing education, commission fee to brokerage/firm, maintenance fees, and property renovations. Typical sources of “Income” may include commission, application fees, tenant rent payments and late fees.
As a bonus, you’ll look brilliant and invaluable when you share your best practices for financial records to help your homebuyers and business partners secure loan approvals smoothly.
You’ll need to keep supporting documents, like receipts and contracts, and reconcile your records with the bank’s to reap these benefits. If we’ve convinced you that good bookkeeping is crucial but you don’t have the time, let’s talk about our seasoned team taking care of your financial records, including daily transaction classification and expense tracking, payroll, bill payment and invoicing, business tax planning and preparation, and reporting. Then you can focus on running and growing your business.