One of the least popular tasks for many real estate investors is bookkeeping. Whether or not it is your cup of tea, I have a couple simple tips for automating the process so you can free up your time for some of the other tasks you like better.
This system isn’t quite fully automated, but it’ll certainly make bookeeping easier and save you plenty of time.
How to Invest in Real Estate While Working a Full-Time Job
Many investors think that they need to quit their job to get started in real estate. Not true! Many investors successfully build large portfolios over the years while enjoying the stability of their full-time job. If that’s something you are interested in, then this investor’s story of how he built a real estate business while keeping his 9-5 might be helpful.
3 Components of Semi-Automatic Real Estate Bookkeeping
Separate Bank Accounts
The first, and arguably most important step in automating your bookkeeping is to create separate bank accounts. At the bare minimum you’ll want to have one separate account for each ownership structure under your responsibility.
For example, if you own your properties personally, create a separate account for your real estate investments. Or, if you work with partners, have a separate account for each of the various partnerships or joint ventures you work with. To take things a step further, you may want to create one account for each individual property even if some properties have the same ownership structure.
Most mortgage companies these days use pre-authorized debit. On whatever day your payment is due, your lender will take the payment directly from your account. To further automate the process, why not setup pre-authorized debit for your property tax, insurance, utilities, property management, and any other regular monthly expenses? Sure you need to keep an eye on the transactions each month, but using PAD ensures your bills get paid even when life gets a little hectic. Knowing your business can survive a little longer on its own is usually a step in the right direction.
At some point you’ll want to track your transactions by entering them into your system. Whether you keep track of your income and expenses using a simple Excel spreadsheet or favor accounting software for the task, most banks allow you to download a CSV file containing your transactions. Simply copy the transactions you download from your online banking to whatever system you use and your update is complete. Thanks to the separate bank accounts you’ll be using, the transactions will already be separated. At this step you can start to really see the benefit of using one account per property.
Why You Should Automate Your Real Estate Bookkeeping
Be Organized by Default
Most of us prefer to be organized, but when things get busy, bookkeeping and paperwork can get pushed aside and start to pile up. If you setup separate accounts and pre-authorized debit for your bills, the system keeps everything organized for you.
Avoid Commingled Funds
From a cash management perspective, having a commingled fund may seem like the best idea. Pooling all your cash into a single account means you have a larger balance to work with and are less likely to deal with overdraft issues.
The problem with commingling funds is there is no clear separation. With separate accounts you’ll be able to tell at a glance if your property is profitable or bleeding cash. You’ll also be able to tell if you have a healthy reserve fund available for each property.
Perhaps the best reason to automate your real estate bookkeeping is because its so easy to do. Investors rarely enjoy accounting, so why not make a couple of easy changes to simplify the process and save yourself time and frustration?
Photo credit: o5com