Communication between different interested parties can often be difficult, yet it is an integral step in effective real estate accounting. Taking the time to communicate early and often will save everyone involved time (and possible aggravation) down the line. The best software for real estate agents depends on the specifics of each agent’s business. For example, large real estate agencies need different features and capabilities than solopreneur agents. While Zoho Books offers few real estate-specific tools, its integratable proprietary apps expand its ability further to serve real estate professionals. Data analytics has transformed how real estate businesses approach financial reporting and decision-making.
The cash method of accounting reports income at the time it is received and bills at the time they are paid. For example, if you deposit $2,000 in rent on June 1st and pay $1,500 in bills in the month of June, using cash accounting you have a profit of $500 for the month of June. It’s essential that business funds are kept separate from personal funds to avoid significant tax implications or even fraudulent activity.
Rental Property Accounting 101: What Landlords Should Know
Magazine and the founder of ProsperBull, a financial literacy program taught in U.S. high schools. Alana Rudder is a staff writer at Forbes Advisor, specializing in testing and reviewing, HR, payroll and recruiting solutions for small businesses. She currently serves as a business consultant, operations manager, and content strategist at Doubting Thomas Research Foundations’ Afghan Liberty Project, a small non-profit organization.
The real estate sector has evolved tremendously over the years and involves a lot of transactions, complying with a lot of state regulations, and so on. Amidst all this, an integral and essential part of the industry is accounting which every property manager must keep a record of. If you are a property dealer who finds it intimidating to catch hold of the accounting part, then this post is surely going to help you. If your business expenses aren’t clearly recorded and labeled, you may miss out on a significant amount of deductible income. If you lack clear balance sheets and P&L statements, it may take longer to file your business taxes. Good accounting habits can make the tax process easier and faster—while also optimizing your tax deductions.
How to Simplify Your Real Estate Accounting Needs
Landscaping costs may be higher in the summer, but next to nothing in the winter. Or, you may need to install a new HVAC unit next year, so you can set aside a small percentage of your rental income each month to fund a CapEx (capital expenditure) account. For example, if you bill the tenant for $2,000 in rent in June but the tenant doesn’t pay, you still have income and a receivable of $2,000 based on the accrual method. If you receive $1,500 in bills for the month but don’t actually pay them until July, you still have an expense and payable amount of $1,500. In order to maximize the returns on your real estate investment, it’s important to understand how the accounting works. That’s because the buck stops with you, and not your CPA or accountant.
Modern software exists that digitally records each transaction and performs calculations. Imagine that you have an open book in front of you—a business ledger. In traditional bookkeeping, you would enter the debited amount on the left page, and the credited amount on the right page. So, for this transaction, $500 would be recorded on the left page real estate accounting (debit) and $0 recorded on the right page (credit). Not only that, but it’s generally agreed upon that if you want to turn a profit and generate substantial wealth, you must invest in a multitude of properties. That’s a lot of assets, a lot of speculation, and a lot of numbers to crunch; and that’s why having accurate accounting is a must.
