When I talk to people about bookkeeping for real estate investors, they’ve all had different experiences with their current or former bookkeepers. Sure, many of them have a bookkeeper that’s always late. I love helping those people, because I’m always on time.
But often I deliver so much more than that. While some come to me with the three keys of real estate investor bookkeeping in place, most don’t.
Let’s look at those three aspects.
1. Property expense
Real estate investors often think about finances in terms of property expenses. And it’s nice when I tell people that we can break that out and track each one of their houses. We can look at them in units or shuffle it around however they want to do it.
We can really get granular with our data entry on a per-property basis!
Obviously, that’s really important in real estate bookkeeping. That same sort of breakdown is also possible with each house flip, each construction job, and each wholesale deal that you do.
Many people just starting out think it’s great to start with that breakdown, but what they don’t realize is the second aspect of real estate investor bookkeeping.
2. Business overhead
Sure, you may have utilities and other expenses on individual properties. But let’s say you flew out to look at several properties you’re considering purchasing. That’s an airplane ticket, which is a travel expense. That isn’t necessarily a per-property expense.
The same can be true for networking events, leasing fees, and even bookkeeping fees. You’re doing business, but you can’t really assign it to a specific property.
So the second essential aspect to real estate investor bookkeeping is your overhead. There’s no reason to split that out among your properties. Keep your overhead together and track it separately from your property costs.
Most real estate investors think it stops there. They’re wrong!
3. Balance sheet
The easiest way to talk about the third aspect is to talk about balance sheet accounts. Whether it’s an asset, a liability, or a loan, it goes on the balance sheet. And for a lot of people, this is where their bookkeeping falls apart.
I worked with a client earlier this year that had 100 houses and no balance sheet. Now that he does, he can go out and refinance and make some serious money just by having a conversation and signing a piece of paper at the bank. Before he had a balance sheet, he couldn’t do that!
Unless you have a balance sheet, you probably can’t pull $30K out of a house and still make your payments. Real estate makes more money than just on the sale, and a balance sheet is key to taking advantage of that.
Of course, sometimes I meet with real estate investors that have all three of these in place, and they just need someone to take over with the debits and credits. And that’s great, too. But with most clients, I help them immensely by getting those three aspects set up.