Real estate is one of the world’s most lucrative markets. It is, however, one of the most difficult. To become a successful investor, you must navigate a lot of uncertainty, and you must invest in several assets if you want to make it big in the market.
With all of those assets and projections, you’ll have many numbers to crunch each month, which necessitates the use of a reliable real estate accounting system.
For a seasoned investor, that’s a lot to manage, which is why we’ve put together this comprehensive guide to assist you in designing a framework that works for your business.
Who makes use of real estate accounting?
Property management makes use of real estate accounting. When working in real estate, you are dealing with large sums of money, and it is critical to understand how to manage these transactions.
If you do any of the following, you should be familiar with real estate accounting:
- Own and operate a real estate agency.
- Client property management
- Handle a housing association’s accounts.
- Own and run a building construction company.
- Oversee an investment trust
- Offer residential sales
Knowing how to do real estate accounting will help you run your business more efficiently, and learning how to manage your books will enable you to track your progress.
What to track in the case of real estate accounting?
The following list highlights some of the fundamentals you should monitor, regardless of whether your operations are just getting started or have gained significant traction.
- Commission earnings
Real estate agents earn money from property sales as well as commissions on each closed transaction. As the primary income source, real estate professionals must accurately track, supervise, and report all incoming cash sources from these sources.
- Expenses and fees
Based on their employment status, real estate agents may be obliged to submit a percentage of their commission with a brokerage or firm. This sum is classified as an expense.
- Costs of continuing education
Renewals and continuing education classes cost money to keep a real estate licence active. Always take into account these expenses and ensure that your accountant can include them in your costs for the year.
- Travel and mileage expenses
Travelling from property to property to sell, speak with clients, or track a network of properties takes a significant amount of time and effort. Don’t make the mistake of leaving these figures out of your real estate accounting procedures.
Real Estate Accounting Tips
1. Keep your personal and business finances separate
The first step in the process is to open a business bank account. For all of your real estate purchases, you’ll need a business bank account. All the money is kept in one location, and you can easily see your bank balance and what transactions are completed and still pending.
You’re setting yourself up for a lot of misunderstanding if you don’t keep your personal and business transactions apart. Having a separate bank account often makes you seem more trustworthy and competent in your customers’ eyes. If you have an extensive portfolio of properties, then having a different account for receipts and payments will be helpful.
2. Track the expenses
Under the umbrella of your investment firm, monitor the expenses and profits for each investment property individually.
3. Maintenance of books
The next step is to set up your books. Most investors choose to maintain both electronic and paper records using tools such as Xero. You must also keep supporting copies of any documentation that helps to identify what’s in the books. Certain supporting documents are:
- Receipts and invoices
- Bank statements
- Credit card statements
- Tax returns
- Insurance information
- Contracts
- Leases
As without supporting documents, there’s no other way to prove above the happened transactions, and you can maintain them digitally or in hard copy as well.
4. Make sure your bank account is reconciled
It’s one thing to keep track of your transactions; it’s another to double-check that they’re reflected correctly in your bank account balance. Compare your books to your bank account at least once a month to keep them correct.
Keep an eye out for potential accounting irregularities, bank errors, scheduling delays, and other inconsistencies. Making this a habit will help you to spot any discrepancies early on and correct them.
5. Communicate with all parties involved
Real estate income generation is done in various ways, and you may need to depend on multiple people to negotiate a deal or manage investments. Don’t ever assume that these people know what you need in terms of documentation regarding accounting. Set your requirements and provide timely reminders regarding tax statements, documents, or other proofs of purchase.
Winding-up
This guide will help you get started with your real estate acquisition and development accounting. However, you may need the assistance of a professional to keep the accounting systems together. So, depending on the nature of your business, contact the certified accountants in London or use an online accounting service to meet your real estate accounting needs.
