Bookkeeping Basics for Real Estate Brokers & Agents

March 7, 2022

real estate bookkeeping basics

There's a lot involved in getting your property management accounting up and running. Below, we'll break down the best property management software of various types depending on whether you manage rentals, commercial, HOA/condos, or any other or general. If you're just setting up your accounting, QuickBooks is a great place to start. However, if you manage dozens of properties yourself or are part of a property management team that manages large numbers of properties, you'll quickly notice the limitations.

real estate bookkeeping basics

Meticulous bookkeeping keeps you updated with property tax updates. So, you’ll be able to prepare your overall tax returns without much hassle. The tax requirements and implications vary according to different types of properties. Thus, your accountant can help you keep up with the best property options while adhering to the latest tax implications.

Popular Software for Real Estate Bookkeeping

As its name suggests, single-entry bookkeepingrecords only one entry per transaction. You enter the account title and input either a positive or negative amount, depending on whether you earned or spent money. This type of bookkeeping is only recommended for small businesses with not much activity. You will have to sort your business and personal expenses into 2 separate categories and may need to file taxes for both your business and personal arenas depending on your company’s structure. Once you have your operating costs sorted in your accounting system, you can take steps to track all of your business expenses.

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Mortgage payments or debt service payments can also be tricky to record correctly. Mortgage payments consist of debt, interest and potentially an escrow amount. Make sure to add these additional categories to the mortgage payment when real estate bookkeeping posting from the bank feed. If the overall project runs over $2,500, we will need to capitalize all of those expenditures. Under our assets listing, set up a category for each unit called improvements to record these transactions.

Knowing your cashflow means GROWING your cashflow—for now and forever.

For example, if you keep a marketing agency on a monthly retainer to maintain your real estate website, you will factor this expense into your OPEX. It doesn’t matter whether you sell a dozen houses this quarter or none—you’ll still need to pay the flat marketing fee. Additional OPEX listings include rent, a lease on a work vehicle, and utilities like internet fees or your electric bill.

An accounting period is a period of time within a financial statement. I've also learned a lot from students of the first course through the REAB community and our live Q&A sessions. I decided to re-record the ENTIRE course and add even more content! REAB 2.0 includes everything from the original course + way more bonus content. The IRS website also provides small businesses with plenty of information about real estate income and deductions. Examples of Income accounts include Rental Income, Interest Income, and Sales.

The 1031 exchange timeline

Because there isn’t a delay between the service and payment, the cash-based model works. As your real estate business grows, you’ll need healthy bookkeeping habits to forecast growth and understand your financial opportunities. Consider a few of the different types of expenses that come with operating a real estate business, along with the different sources of income you can expect.

This will help ensure you have a system of checks and balances that will get you consistent financial data. John provides tons of real-life real estate examples to teach every concept. For example, there are simple transactions like how to enter a rent check but it also includes much more complex transactions like how to account for buying and selling an entire property. John Hyre’s course “The Real Estate Investor's KISS Guide to Bookkeeping” has been around for many years and has been used by hundreds of real estate investors to help them with their bookkeeping. That could mean everything from leaving significant money on the table to not having enough information to support your REPS if you get audited.

Top 6 Ways for Efficient Real Estate Bookkeeping

Accurate information will enable investors to comply with local tax regulations, which help minimize the risk of being investigated by tax authorities due to faulty bookkeeping practices. Cash outflow is something where you can’t afford to make mistakes. Going through each and every transaction where you are spending money is highly prone to human error. Even if you guarantee the accuracy, it can be a time-consuming process. You can’t just leave your business operations and sit and calculate all day. These could be cash held in the business, receivables due from tenants or buildings generating business revenue.

Once the project is complete, the asset is in use and your CPA will begin depreciating it. Additionally, the IRS requires a minimum set of categories to be utilized on tax forms. This is the bare minimum required when categorizing transactions. Too many categories conversely causes clutter, making it difficult to perform analysis on reports.

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