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Accounting Tips For Real Estate Businesses

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    For real estate businesses, there are several bookkeeping and accounting standards. There are many things to monitor when running a real estate business, from tracking income to keeping tabs on spending. In this blog post, we'll provide you with some tips on how to handle the accounting and bookkeeping for your real estate business.

    Real estate enterprises can be challenging to run, but with the right accounting techniques in place, you can greatly improve operations. The tips in this article can help you keep your books organised and prevent unpleasant surprises in the future. So without further ado, let's begin!

    As the owner of a real estate business, you are presumably responsible for keeping track of a number of financial transactions each month. It might be difficult to keep track of your finances, but with the correct accounting guidance, it can be much easier.

    This blog post discusses the best methods for maintaining book organisation. We'll also give you some tips on how to lessen your tax burden each year. So if you're looking for wise tax and accounting advice, keep reading!

    What Is Real Estate Accounting?

    Real estate accounting is in charge of overseeing the management of financial transactions and other duties relating to real estate. Using the historical data that the system recorded and saved, you can assess and forecast the following data:

    • The evolution and expansion of your real estate businesses
    • Assessment of business areas and potential for development
    • The total profit made during a specific period of time
    • Taxes and other fees are shown in the payables.
    • Comparing the total amount of earnings to payables such as invoices and staff salaries

    Why Do Real Estate Agents Need Accounting?

    Effective accounting methods are necessary for real estate agents for a number of reasons, some of which are based on the kind of real estate activities that an individual manages.

    Having the appropriate accounting structure is essential whether you work on minor real estate projects or spend your time negotiating significant corporate contracts. Several factors make real estate accounting crucial, including:

    • The capacity to view your financial condition from a broad viewpoint
    • Insight into your company's yearly progress
    • The chance to control your financial flow and keep an eye out for potential warning signs
    • Having an efficient method for producing yearly tax returns
    • Examining your spending to ensure timely payment

    The True Goal of Real Estate Accounting

    It's simple to become bogged down in complexity while managing financial information. Real estate professionals must prioritise strong accounting practices to preserve professionalism, despite the temptation to ignore or create excuses for time-consuming money management activities.

    Real estate accounting's main objective is to keep an accurate, realistic picture of how your company is performing at any given time so that you are better able to make wise financial decisions for expansion and profitability.

    While a thorough understanding of all aspects of financial management is not necessary for this, it does call for a commitment to study, adapt, and keep on top of crucial accounting chores.

    Bookkeeping vs. Accounting for Real Estate

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    Although the terms "accounting" and "bookkeeping" are frequently used interchangeably, they may refer to various processes when it comes to running your real estate company.

    In general, bookkeeping tasks consist of the following:

    • Monitoring debit and credit card charges carefully
    • Establishing a method to bill clients and collect payments
    • Verifying again the veracity of bank records and statements
    • Upholding proper payroll processes (if applicable)

    However, accounting is more comprehensive and covers a wide range of financial duties and responsibilities. Consider the following while thinking about accounting as a whole:

    • Conducting audits or financial analyses to have a better understanding of your financial situation
    • Preserving adherence to legal standards and business laws
    • Making crucial tax season preparations
    • Accurately understanding gains, losses, and profits

    You feel more confident when you can tell the difference between bookkeeping and accounting. However, it could also be useful to know when to assign responsibilities to other experts who can assist you in managing these crucial areas.

    What Data To Track?

    Real estate accounting is incredibly important. The basis of a successful real estate firm is the data generated and obtained by maintaining an understandable accounting system.

    You must develop the habits of running a successful system whether you are a part-time or full-time real estate investor. Due to this, the following is a partial list of the data and information you must monitor:

    1. Commission-based Profits

    By selling a home, real estate brokers can earn money through commissions. It only makes sense to carefully track and manage all of your company's income streams because this is the main source of revenue for real estate enterprises. Instead of using different tools for each category, handle all of this data in a single accounting system to simplify the process.

    2. Cost of Travel and Transportation

    Owners of real estate properties travel frequently, whether to check out prospective properties, meet with clients in person, or oversee several properties in various areas. It makes sense that all of these tasks would use up your time and financial resources, thus it's critical to record the costs in your accounting records. You can also use such whenever you do regular audits of your business spending.

    3. Costs of Marketing

    Your real estate endeavours, like any other business, require effective marketing and advertising to increase their reach, but they are not free. While some marketing initiatives are free, others cost money. Usually, marketing costs will consist of the following:

    • Website creation, development, and publication
    • Management of social media marketing and content initiatives
    • Pay-Per-Click and affiliate marketing on the internet
    • Marketing and management of events
    • Ads in print
    • The cards are printed

    4. Back-office and Admin-Related Expense

    Basic administrative costs related to the use and upkeep of computers, office supplies, and other instruments are also incurred in the real estate industry.

    Additionally, it incurs higher costs, such as rent for office space, pay for team members, maintenance fees, etc. Even if you go to a remote working method, you will still need to pay for salaries and other necessary tools.

    5. Costs of Maintaining Licenses

    Every few years, real estate licences must be renewed. Additionally, many of agents take classes for ongoing education. And the organization—your company—is responsible for paying for these renewals and continuous education. To gain a clearer perspective of your overall expenses, it is crucial to incorporate these in your accounting records.

    6. Expenses from Association and Other Brokerage Fees

    Real estate agents frequently have to pay brokerages a specific amount as a commission, which will add to your company's expenses. Additionally, some licenced real estate agents who belong to particular organisations must pay association dues, which are subtracted from your revenue.

    Real Estate Accounting Tips

    Accounting, as previously noted, may make or break your real estate firm. Hiring an accountant, though, might be helpful if you don't know how to do it and have numerous properties to maintain. You can then concentrate on growing and enhancing your real estate enterprises.

    To determine whether your accountant is doing it correctly, you must still master a few accounting tricks. As a result, the following real estate accounting advice may be something to think about:

    1. Utilise an Accounting Management Software

    Whether you're just getting started in the real estate business or have been in it for a while, using property accounting software is beneficial. Along with accounting software characteristics, contemporary property accounting software has features that are simple to use and easy to navigate.

    You may track completed transactions, sales data, and commission distribution using these services. The following are some additional advantages of using accounting management software:

    • Centralised Management of Tools and Data: To handle everything, just utilise one piece of software. Additionally, all users simply need to open one piece of software to retrieve these data.

    Other tasks, like managing to invoice, are facilitated and accelerated by this. The danger of errors associated with manual data entry is further decreased by having a central database for invoicing information. Last but not least, you can concentrate on more fruitful work with all the time that has been regained by removing pointless conflict.

    • Access To More Comprehensive Dashboard: Depending on the software you select, the majority of property management systems have access to customizable dashboards.

    Users can quickly and easily access specific information using a complete dashboard. For instance, various organisations require different data, thus accessing that data improves the efficiency of managing multiple property reports and information.

    • Accurate Analysis of Different Income and Expenses: Quick updates for verified cash inflows and outflows are possible with real estate accounting services. This acts as proof that your financial department won't encounter any issues down the road.

    A budget history also enables you to review previous tactics, identify where they failed, and make adjustments based on that information.

    2. Select an Accounting Model That Suits Your Needs

    Thanks to recent technological advancements, real estate firm owners now have access to accounting procedures that are more efficient. However, you must first choose which kind of accounting system best suits your requirements. A few examples include the following:

    • Accrual Accounting: This type disregards the actual money transfer. Despite the absence or delay of real money exchange, revenues and expenses are recorded in the accounting book. Consider the situation where a tenant's rent is overdue but they haven't paid it. You will still see the money owed on the books despite the delayed payment.
    • Cash-basis Accounting: This kind of system depends on cash flow within the company, as the name would imply. In other words, you won't record incomes or expenses until after the money has been moved or transferred.

    3. Separate All Business and Personal Undertakings

    Never combining personal and business-related transactions is always advised. Under no circumstances may personal purchases be made using business accounts.

    Developing this behaviour will ultimately make it more difficult for you to manage your finances and accounting. It creates conditions for inaccurate data, cash flow mistakes, and inaccurate tax records.

    Therefore, it would be beneficial if you developed the practice of utilising a different account for extra purchases. You'll become more organised, but you'll also appear more respectable in the eyes of your creditors, investors, and clients.

    4. Establish Your Account Charts

    An accounting chart is a list of all the real estate-related changes you make, to put it simply. Therefore, keeping a well-organized accounting notebook requires the use of an accounting chart. This catalogue will also be useful for accessing historical data, creating reports, and evaluating performance against predetermined thresholds.

    Make sure to include a number of categories for various types of transactions when designing your account charts. Therefore, you might have a distinct selection for maintenance and repairs and a second one for insurance, administrative costs, marketing, and other expenses.

    Don't forget to promptly log any transactions or money releases into your accounts as they happen. Most crucial, don't forget to provide the property data. Add any additional information and notes regarding the transaction so you can distinguish between them.

    To guarantee accurate records, you should also routinely tally and perform balance checks as well as update your account charts.

    5. Ensure Data Accessibility

    Tax audits frequently target real estate enterprises, which is definitely stressful for many business owners. Additionally, government audits cost a lot of money.

    The tax inspector will examine each account you have in an audit to check for any potential inconsistencies. To have an organised data record that you can refer to if there are any problems, you can conduct government audits at random.

    Strong property accounting software is a gift in these situations because it keeps track of audit trails and purchases data, improving inspections.

    5 Ways Real Estate Accounting Software Should Make Your Life Easier

    You got into the real estate industry because you enjoy assisting individuals in finding the ideal residential or commercial property. Generally speaking, you are curious about the layout and use of residential and commercial areas. You are also fascinated by people's aspirations for their residence or place of business.

    These passions motivate you to achieve success for both yourself and your clients. But in practice, especially if you enter the management side as a Principal/Director or office manager, you will have to push through a lot of paperwork to fulfil your clients' dreams.

    Accounting software made specifically for real estate offices reduces paperwork and gives you more time for the real estate-related activities you like. Five reasons your real estate accounting software programme makes your life simpler are listed below:

    1. Create and Manage Contracts in One Location

    Quality real estate accounting software makes it easier to write and manage contracts in their details. When a property is first advertised, information about the vendor and property is entered into the system. The real estate accounting software will remind you to enter the essential data when someone submits an offer, including:

    • Sales price
    • Commission
    • Names of the involved parties (buyer, agent, and solicitor)
    • Relevant dates
    • Conditions

    The notes you add to the contract will serve as a reminder of any other information that needs to be addressed.

    The software then compiles the contracts, remembers crucial dates, sends you reminders, and creates any required letters. These reminders make sure that nobody misses crucial dates that could postpone the closing.

    2. Automatically Calculate and Manage Commissions

    The programme streamlines commission administration. You won't need to manually calculate commissions plus expenditures plus deductions, for instance. By doing this, the chance of calculating the final payment incorrectly is completely eliminated.

    The software determines the final commission after you enter any required withholdings or agency expenses. The software then configures you to send the money straight to the agent's bank account, guaranteeing prompt payment to the agent.

    3. Generate Invoices with Ease

    Through the straightforward inputs you make into the software, you'll simply be able to generate invoices for things like vendor paid advertising or commissions.

    Because everything is handled automatically by the system, you won't need to use any additional software or type out invoices by hand. Additionally, this stops mistakes from being injected while switching between various pieces of software.

    These bills are reflected in the reports you produce for your vendor and your vendor's attorney.

    4. Set Up and Manage Sales Trusts Quickly

    Your receipts and payments are documented against the contract, which simplifies the process of setting up the sales trust for every real estate transaction. The software also includes data for all of Australia's main banks, with intentions to include New Zealand as well. This simplifies setup and streamlines communication between buyers, lenders, and sellers over the course of the transaction.

    Additionally, you may make reports for all interested parties using the software without worrying about making mistakes. Additionally, for the reporting process to work smoothly, you only need to input each detail once.

    5. Reconciliation as Easy as Point and Click

    To make sure all transactions have been appropriately recorded, reconciliation can be swiftly completed by pressing a few buttons.

    The real estate accounting software will keep track of all transactions, regardless of their origin. To the appropriate entries, you only point and click. If the one-time entry leads to a system issue, you can fix it once and fix it throughout the entire procedure.

    Then, your reconciliations will guarantee that your organisation complies with any federal, state, territorial, or local laws. Additionally, it can produce the required reports to verify compliance.

    Contact our helpful staff right now to find out how you can streamline your real estate business's tedious activities and put an end to the problems associated with maintaining your brokerage's paperwork.

    Conclusion

    By implementing the aforementioned advice, you can improve accounting for your real estate firm. Even better, you can impart the aforementioned advice to a qualified accountant while assigning the duties to them. As a result, you and your company will find real estate accounting to be lot simpler and more effective.

    What questions should I ask my accountant before buying an investment property?
    • What is negative gearing? ...
    • What ownership structure should I choose for an investment property? ...
    • Am I better off buying a brand new or older property? ...
    • Do I need a depreciation schedule? ...
    • Can you help me with my budget?

    An accountant is a professional who is responsible for keeping and interpreting financial records. Most accountants are responsible for a wide range of finance-related tasks, either for individual clients or for larger businesses and organizations employing them.

    Accounting is the process of recording financial transactions pertaining to a business. The accounting process includes summarizing, analyzing, and reporting these transactions to oversight agencies, regulators, and tax collection entities.

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