How To Master Real Estate Accounting in 5 Steps
Are you a real estate broker, agent, general contractor or investor looking to improve your accounting practice? Real estate accounting can be tricky to navigate with information from different parties such as banks, investors, vendors, etc. Here are five simple steps to help you master real estate accounting and find the exact return on investment for your property with QuickBooks.
Step 1. Set up a real estate chart of accounts
A chart of accounts is the tool you use to track your company’s financial assets by categories such as revenues, cost of sales expenses, and occupancy expenses. A good chart of accounts should have three characteristics: each account should be assigned a number, numbers should be assigned to accounts in an organized fashion to keep similar items close together, and consistency should be kept when adding the transactions into accounts. Please see a sample chart of accounts for real estate in the appendix. A chart of accounts is the foundation of your financial statements, so it pays off in the long run to have your chart of accounts set up correctly.
Trick: Apply the same chart of accounts to each property. This will save you a lot of time at the end of the year when you need to combine all of your financial statements together.
Step 2. Link credit and bank cards to QuickBooks Online
Once the chart of accounts has been set up, link your company’s credit cards and bank accounts to QuickBooks. QuickBooks memorizes the way you record transactions, so be sure to utilize this powerful feature in banking session. To save time on accounts payable, Bill.com is an app that is integrated with QuickBooks to receive bills, approve and make payments online, and sync the transactions into QuickBooks.
Trick: Depending on the volume of transactions for each property, you might want to open a different credit card and bank account for each property. This step will help you eliminate the process of researching which property the expenses and revenue belong to.
Step 3. Use the “Recurring Invoice” feature to automatically send invoices
The next step is to record properties, property units and tenants as clients in QuickBooks. For clients that you send invoices to on a monthly basis, QuickBooks has a function called “Recurring Invoice” to send invoices automatically to your clients on the dates you specify. By using the “Recurring Invoice” feature in Quickbooks, you will save time on invoicing and ensure you receive revenue more quickly.
Trick: In situations where you are tracking time spent on the project, T-sheet can to help you track time and record the expenses in QuickBooks.
Step 4. Use the “Tracking Classes” function to track revenue and expenses by property
To track revenue and expenses by property, turn on the “Tracking Classes” function and tag each transaction by class. Once you have received payments and made payments for each property, make sure to tag them all by class. By doing this, you are assembling an income statement for each class (property).
If you are looking for an app to store receipts digitally and manage reimbursements, Expensify has desktop and mobile versions to integrate into QuickBooks.
Step 5. Run Income statement and balance sheet by property and location
The goal of real estate investing is to get a return on investment (ROI). Therefore, it is important to track revenues and expenses accurately and from there calculate the exact ROI. Once all the revenue and expenses are tagged with classes, it is time to use the “run Income statement by class” feature.
Trick: Review each transaction and make sure all the transactions are tagged with a property. By doing this, you are reviewing the transactions and making sure you are not missing any transactions for the related property.
Doing your real estate accounting properly doesn’t have to be overly time-consuming. Using the five steps above can help you track revenue and expenses easily and find your real number for return on investment.
