Paperless Accounting: How to Streamline Your Real Estate Bookkeeping

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I’m a masochist.

Back in August our book keeper moved on to greener pastures and I figured it would be a great opportunity for me to take over his responsibilities: keeping records for 8 LLC’s and ~200 properties.  I wanted to learn the ins and outs of accounting and fix some inefficiencies along the way.  I told myself I’d do it through one tax season.  Turns out…bookkeeping sucks.

Somewhere along the way I decided to overhaul the system and roll out paperless accounting.

Not just paperless accounting, I wanted a scalable solution that was fall of the log easy for our users and required little effort on the back end.

Today, tax season is winding down, and we’re rolling out the finishing touches.  Gone are the file cabinets, endless scanning, and full time bookkeeper.  Now, once you make a payment, you only have two steps:

  1. Write the property and account at the top of the receipt
  2. Take a picture with your phone

That’s about 5 second of work.  Everything else automagically happens behind the scenes (and no, I’m not doing it).

If you’re anything like me (geeky), you’ll find this sort of thing fascinating, so I thought I would share with you how the system works and what tools we use.

N.B. I’m going to detail expense handling…income is similar but different.

Let’s start where the user left off.  They’ve taken a picture of a receipt with their phone.  Sort of, they had to do so with…

Handy Scanner

Cost – $3.99 for the Pro version for Android.  Sorry folks…not available for iPhone (although I’m sure there’s a competitor).

Handy Scanner converts a photo into a pdf (portable document format, the standard for static documents).  There are any number of application that do this same thing, but Handy Scanner was the one that checked all my boxes.  It allows for multiple pages, cropping, and basic image post processing in case your hands aren’t the steadiest.

The best part of Handy Scanner is that once it creates the pdf, you can set it up to automatically move the files to…

Google Drive

Cost – Free.

Google Drive started as a web based competitor to the Microsoft Office suite.  While it’s lacking in some of the higher end functionality (in their spreadsheets pivot tables are terrible  and you can’t record a macro), it nails the basics.  Creating documents, presentations, and pdf’s is a breeze.

Once people started creating all these documents, the Google boys had to find a way to store them.  So they tossed together a web based file management system.  It can store any file you can put on your computer…and it will even sync to a folder on your PC (like Dropbox).

It’s into this system that our pdf receipt is copied by Handy Scanner.  Once there, it gets moved to the correct directory.  If it’s a bill that needs paid it goes into the “Needs Paid” directory.  Then whoever pays the bills can do so from anywhere in the world (perks of paperless accounting).

Once paid, the document is moved into the “Needs Reconciled” directory,

What is it being reconciled with?  Well, your…

Online Banking

Cost – Free.  Are there any banks that don’t offer this these days?

Every couple of days, we download our full transaction history and append it onto a spreadsheet on Google Drive.  From there, someone has to match the receipts in “Needs Reconciled” to the corresponding transaction in the spreadsheet.  Once a match is made, we mark that row of the spreadsheet as found and move our pdf into the “Reconciled” directory.

At this point, we also change the name of the file to an id we create based on our transaction (we use “account-date-transactionnum”).  This makes it easier to dig up later.

A few thousand transactions a month and we have to match every one up?  This is when things start to get time consuming.  If only there was a way to get someone else to do it for us.  Maybe a company?  Something like…

IntegraBookKeeping.com

Update – This was originally yourdailytask.com.  A poor experience led me to switch to Integra and thus far I’ve nothing but positive things to say about them.

Cost – Around $7.85/hour.  For our ~200 properties, I’m spending ~20-30 hours a month keeping records, so let’s say it takes our outsourcing folks 40 hours…that’s $314.

The paperless in paperless accounting means the files can be accessed from anywhere…and it makes it simple to outsource.

Integra is one of countless virtual assistants.  Virtual assistants focus on helping you out with tasks you can’t or don’t want to do…as long as they can do it remotely (at a fraction of the cost you’d pay in America).  I’m currently training them on our system…I’ll let you know if they work out.

One downside of outsourcing is that it’s more likely someone is going to mess up your paperless accounting system.  So…to be safe, we use…

Backupify

Cost – $4.00/user/month

Backupify does exactly what you expect.  It makes a complete backup of all of your data.  It works well with Google Apps for Business and if things do get FUBARed allows you to do a complete restore.  Oh..and it also has some handy security features like tracking every action any user takes.

We’ve not had to use it to date, but $4 a month is a cheap insurance premium.

In and of itself, the file management/receipt tracking system we’ve discussed isn’t useful.  The rubber hits the road in…

Buildium

Cost – $125/month (for the 100-200 unit plan)

Buildium is a web based property management system and the backbone of our paperless accounting system.  It tracks everything the aspiring real estate investor needs: properties, tenants, leases, accounting, etc.  The user interface is intuitive and the accounting entry is top notch.

My favorite feature is that I can setup online access for our investors.  Meaning they can see how every penny of their money is invested, whenever they want.

Remember how I said we gave a unique id to every reconciled receipt in Google Drive?  Well, we add this id to the corresponding entry in Buildium.  So, if we are poking around in Buildium and have a question about a transaction, all we have to do is copy and paste the id into the search field in Google Drive and voila…the receipt.  It takes about a second…much better than searching through a binder of receipts.

Buildium does come up short in one area: reporting.  It’s great for putting data in, but not so great for getting data out.  To get around this, I had to bust out skills acquired in a former life: I wrote various Python scripts to beat a raw general ledger into a format I can use.  However, that only is a factor when I’m trying to answer questions like: “How often do two year leases default” or “what is the per property percentage return on investment.”  The standard reporting is sufficient 99% of the time.

Wrap It Up: The advantages of paperless accounting

If we tally up all of our costs, it comes $443/month ($5,316 annually).  Or, as I like to think of it, about $2 per unit per month.  Compare that to a full time book keeper at ~40k per year (this was our actual all in cost) and it’s a no brainer.

Now, I’m not so naive as to think that my book keeping duties will forever go away.  However, needing to spend 20 hours a year instead of 20 hours a month doesn’t suck.

Oh…and I might choose to spend those 20 hours on beach in Hawaii, sipping a Margarita.

Photo: david_terrar

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About Author

During Kenny's decade in finance he bought many single family rentals in rural areas, as a hobby. Along the way, he talked some brave souls into joining him as investors and recently retired from finance to take his hobby to the next level. Find more by and about Kenny on his personal blog and his recently created twitter account!

40 Comments

  1. Hi, Kenny.

    Sounds like a good system you’ve got going. On the iPhone, I use an app called CamScanner. The basic version is free. It works fairly well, but unfortunately it doesn’t automatically copy the scanned image to a folder – I’m still looking for an app that will do this. Actually, I upload receipts to different folders based on the job, so I would prefer that it let me set a default folder to open up when I choose to upload the scanned image. Not a huge deal, but it would save a few navigation steps.

    I’m going to save a link to this post to refer back to your other systems as we grow.

    Thanks,
    Mike.

    • Scanner Pro will work for iPhone auto upload

      I’ve been using Buildium. Tenant, property and accounting are good but task management is a hot mess. I’ve been trying GQueues with good success for task management with our google accounts.

    • Valid point Rodney. My stance on this is simple: I try not to do anything I wouldn’t be comfortable with everyone knowing I did.

      While I recognize this is enabling an overstepping government, I would prefer to do that rather than making my life harder for a potential threat.

      Cheers,

      Kenny

      • Rodney Williams on

        I was not so much worried about people knowing what I am doing as I am about them stealing private information, mine or a client’s.

        Also I have read a few post on the internet where individual’s stored info has been deleted. Maybe I am just being a worrywart.

        • Gotcha, I see where you’re coming from. I do worry about technical problems on their end (although the chance of a fubar are much lower than if I kept the info on my pc). We use backupify to mitigate some of that risk.

          Cheers,

          Kenny

        • The biggest problem with Google Drive /Google Apps is that when they do have technical failures, they don’t provide any support. This is the case if you use their free tools or if you pay them- still no real support. It may be a good idea, if you decide to pay for Google Apps, to use a good re-seller who can provide at the least tier 1 support.

  2. Great list of resources! As web development is my ‘day’ job, I would be most interested in hearing what online tools you (and other readers) would like to have, that don’t currently exist? (Or what features are missing from those that do exist?

  3. Kenny, I enjoy your blog quite a bit. I left Kirksville (Truman Alum) a few years before you got there. Thanks for sharing the tips and resources. I’m switching over to quickbooks this year and have been trying to reduce my involvement in this part of the business. This will help to expedite that quite a bit. Thanks!

  4. As a newbie to this field this is a subject I have been thinking about. I work a full time job and am trying to think of ways to simplify everything. Thanks for sharing!

  5. Great Post Kenny. I have been creating an efficient system for myself as well. I just started using Buildium this January. I also started using google drive in the fall of last year. I haven’t quite come up with a smooth system like you but it appears I am on the same thinking as you are.

    Great to know I’m not the only one in quest of efficiency and savings.

  6. Great ideas Kenny. I have been transitioning to paperless. I have been using Buildium for a couple of years and I love your idea of assigning an ID to receipts on your Google Drive. How do you code your receipts for quick access?

    Also, I have been using a free android scanner called “camscanner” and it does a nice job as well

    • Well, we code by using the id. At the moment, we don’t do any handy cross coding with materials or maintenance or anything like that. Buildium does that for us though, then when we find what we’re looking for we can just search for the receipt id.

  7. Kenny, Great article! I too use Buildium and have been pretty satisfied except for the reporting. Any chance you would want to share (or sell) your custom reporting programs with us computer programming illiterate types? :)

  8. Craig Sturgill on

    Hi Kenny,

    Great article! However, I have a solution that I think will be even easier than using your combination of Handy Scanner and Google Drive, and Reconciling the way that you do.

    Take a look at Expensify.com (they also have mobile apps for iPhone, Android, etc.)

    You can use the app on you smart phone to take a picture of a receipt, then log the details of the receipt (expense amount, merchant, comments, tag the receipt, etc). What I would do is create different “Tags” for each category of reconciliation. Create a tag called 1) Needs Paid, 2) Needs Reconciled, etc. There are even advanced reconciliation features that Expensify has, but I haven’t used yet. They also have an API for more advanced users and systems, although most people don’t know what that, and won’t need to bother with it.

    Take a look and let me know what you think!

    Craig

  9. Does anybody use Wave Accounting? I’m in the process of setting it up & I think it might be a savior to my bookkeeping nightmare. It’s free.

      • I’m only one month in, but so far so good. They have some issues with getting data from banks seamlessly, but seem to be working on it. I paid for the $9/month tech support & they coach you through problems pretty good.
        I have 4 companies that I am not perfectly dedicated to keeping funds, bank accounts & credit cards isolated to each company. It allows you to have as many companies as you want set up, & you can almost seamlessly allocate payments made to the correct company. I think it would be great for people with multiple LLCs holding real estate. In my case it is a US real estate LLC, a Canadian Corp owning properties, an incorporated Motorcycle shop & a privately owned duplex. I use a combination of personal & business accounts. An accounting NIGHTMARE!!!, so I’m probably a worst case scenario.

  10. Does anybody use trexglobal for property management? I manage my own and have about 20 units and have to double enter everything on my bookkeeping system (my checkbook) into trexglobal and just wondered if anyone had a suggestion for an easier system?

  11. Great concept. But I have serious concerns about any online/cloud based system. First is the obvious one, security. How many servers were hit recently? Nobody even knows. I don’t want to store personal and proprietary information online, especially in a database warehousing massive amounts of such data just waiting to be cherry picked by some hacker in a third world looking for a few bucks.

    Then there is the ever present and even more concerning question of longevity. Why put data into a system that you have no guarantee will be there tomorrow? How many dotcoms or for that matter small businesses in general have gone down over the years?

    And I haven’t found any comparable PC based systems so I have started reinventing the wheel. It may not be the most efficient way to do it overall, but as a software developer I can do it now while I am just starting out and make it scalable for the future. I actually have been using many of the same concepts, without online storage of anything but images. It’s still in early development but it is encouraging to think I am generally on the same track as you, excluding the online storage. And your article gave me a few great ideas about how to go even further. Like how easy it would be to automatically link the images of receipts and invoices to the property data. With the image on the screen next to the input it should be fast and easy to data enter the receipt for accounting and reporting purposes.

    But whatever means one chooses, paperless, automated databased systems with customizable reporting are the right way to go.

    • That’s fair. My general take is that to ensure data integrity (as in not losing it), keep it backed up in multiple places.

      As far as privacy goes, I avoid putting anything that might be confidential out there. That said, my threshold of trust is probably too high as I don’t have anything to hide.

      Cheers,

      Kenny

  12. Kenny, how has YourDailyTask.com been working for you? I have been looking into Virtual Assistants and have not heard of this company before. Thanks!

  13. Kenny, as a software developer I am well aware of the value of backups. My concern is more about data entry done into a black hole, and all that work being lost as yet another dotcom bites the bullet. What happens when the website shuts down and the program you invested time and money into is gone overnight? You are screwed. I want a personal copy of any software I purchase. If not, I will write my own.

    I too have nothing to hide, though I still don’t want my business deals made public. Even more important is not being responsible (possibly liable?) for allowing other peoples personal and financial data to be stolen.

  14. Excellent and easy to understand info on basic bookkeeping tips. Thanks for using plain language and not getting wrapped up in techno speak!

  15. Mohammad Asaduddin on

    Thanks a lot Kenny. Your post gives me guidance on going paperless. I will definitly use google drive and desktop scanner. Since I have only 16 rental houses and one or two flips a month, I am venturing into combining accounting, bookkeeping and property management into Quickbooks premier. Needing some hand holding help. Can anyone give me a little push?

  16. Kenny, are you still pleased with your outsourced bookkeeping service? I need bookkeeping help and am not sure where to start. Yours sounds interesting. Thanks, Alison

    • So far so good. I’ve actually just increased the scope of their responsibility. Word of advice, know exactly what you want done. There is a communication barrier, so spend some time putting together a complete system and then having them fit into said system. Don’t go in all hand-wavy.

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