Bookkeeping: Not just about the taxes
Many landlords think of bookkeeping as a requirement to file their taxes. While this is true accounting also provides the information to make decisions such as buying, selling, and refinancing. You want to know which properties are profitable and which ones aren’t and then be able to project how your future decisions will impact your profitability. If you’ve hired a property manager it’s important that you manage their performance, and good bookkeeping makes this possible.
When setting up your real estate investment business you want to give some thought into how you want to setup your chart of accounts. For example, let’s say you categorize heat, hydro, and water all into one account called utilities. This can cause an issue in the future if there is an increase in overall utility costs and you’re trying to figure out why it happened. You shouldn’t have to dig through invoices to determine this. If you set your chart of account properly a few keys strokes and you’ll have your answer. If using QuickBooks setup a “class” for each property as opposed to separate accounts. This will allow you to create detailed reports for each property. If you’re unsure consult with an accountant.
Accuracy is very important when entering information into your accounting system, garbage in then garbage out. If the correct accounts aren’t used your financial statements will not accurately reflect the performance of your business. Similarly it’s also important to be consistent. For example, if you book printer toner as an office supply one month, don’t book it as a computer expense the following month.
Even with a few properties the paperwork can pile up. Keep up with filing and bookkeeping and save yourself the anxiety of running around at year end looking for receipts. The larger your business the more regularly you should keep up. If you have two properties keeping up on a quarterly or semi-annual basis would be appropriate, but if you have 20 properties you should keep up on weekly basis. If you can’t keep up or feel your time is best suited elsewhere hire an accountant and bookkeeper with real estate experience. The going rate for bookkeeping is approximately $40 per hour, but there is some variability to this.