Many Americans today recognize the value of investing in real estate. In fact, more than 20 percent of American adults feel that real estate is the best way to build wealth.
Investing in real estate is widely regarded as a smart decision. But navigating the world of real estate investments isn't without its challenges. One big challenge is figuring out your property accounting.
Keep reading as we offer a few property accounting tips that new real estate investors can use.
Keep Your Personal and Business Finances Separate
One common mistake new real estate investors make is failing to separate their personal and business finances. When it comes to property accounting, it's important that any expenses or income related to your investment are kept in a separate bank account and a separate spreadsheet or accounting software from your personal finances.
This serves a few purposes. First, it can help you get a better picture of the performance of your investment. Additionally, it can help to protect you from overspending in your personal accounts to fund your new real estate investment. In some cases, it can have tax benefits and protect you from legal liability.
Record All Expenses
Investing in real estate comes with plenty of expenses.
After purchasing a property, you'll need to pay property taxes, as well as the cost to prep it for sale or to rent it out. If you turn it into a rental property, you'll have property income to keep track of, too. One of the most important business accounting tips that you can follow is to keep track of each expense and all income.
Whether you buy paper towels to clean up a home before renting it out or get your first rent check from a tenant, make sure to record it. You can do this through an accounting service, in a spreadsheet, or even with pen and paper. Just make sure that you're tracking everything.
This information will be important come tax time. It can help you get a better overview of your investment property to see how your investment is doing. If you're thinking about investing in more properties, you'll want to know how much you're making on your current one, and how much money went into getting it ready.
Place Your Expenses in Categories
When you do record your property accounting in a spreadsheet or on paper, create categories for different types of expenses. Some examples of categories you'll want to include are property taxes, cleaning supplies, renovation costs, and property income.
Having these expenses separated by category will allow you to see how you're spending in different areas. For instance, you can see how much you're spending on upgrades to your property. This information is important at tax time, as some expenses may be able to be written off.
Putting Property Accounting Tips to Work
These property accounting tips can help new real estate investors get their finances in order. Another great tip for new investors is to hire a property management company.
A property management company can help you manage your property to success. Contact us today to learn more about how we can help you and your portfolio succeed.