Record Keeping
One of the first things you'll do when buying an investment property is spend money -- for the lawyer, appraiser, realtor, home inspector, and much more. If a proper bookkeeping system is not setup properly in the beginning, your financial records can quickly get out of control. Disorganized records make it very hard to track your profit on a month-to-month basis, provide accurate financial information to your accountant at tax time, and when using joint venture partners, almost impossible to track who has contributed what dollar amounts to the venture.
Separate bank account
It's important to keep your personal finances separate from investment
property finances. It makes it easier to track income and expenses specific to a
property, which is important to determine if the property is making a profit or
not. You can use more than one bank account for small numbers of properties, but
if you end up buying 10 or more properties, it could become difficult to
reconcile that many bank statements.
Choose an accounting package
Whatever you do, don't use Quicken to track your properties! Buy an accounting
package such as QuickBooks or Simply Accounting. Both are available for as
little as $150 from Staples Business Depot. These packages are double-entry
accounting systems, which means there are built-in checks and bounds to ensure
money is transferred to the proper accounts and categories. Quicken is not
capable of doing this, and if you use it, you will be forever trying to figure
out why some account balances don't add up.
If you are not familiar with accounting concepts or accounting packages, buy a
book and spend some time learning. This step is very important, as you will
understand where the money in your property is going and will be able to take
corrective action if there is a problem.
Setup your chart of accounts
Once you are familiar with your accounting software, spend some time thinking
about how you will use the information you collect, then design your chart of
accounts to help you accomplish your reporting goals.
For example, if you are planning on buying many properties, it's a good idea
to be able to run a 'Profit and Loss' report that shows a breakdown of income
and expenses for each property. This will allow you to identify poorly
performing properties and take corrective action.
Hire a bookkeeper
Save your time and your sanity by hiring this tedious task out to a
professional. They'll do a better job and you can spend your time looking for
more deals.
Even though you hire this function out, you still need to give the bookkeeper
guidance on what you want. They are not mind-readers and will need to know how
you want to run reports, how you want receipts classified, etc.
These are only a few of the steps that a serious real estate investor should
follow to track and report on their investment portfolio. When you invest with
Spirepoint Properties, you will automatically gain the benefits of our detailed
financial tracking system through annual reports that you can give to your
accountant at tax time. This is just one more example of how we make real estate
investment easy... we do the work, you share the rewards.
This article is copyright © 2004-2010 Spirepoint Properties. All rights reserved.
Paul Blacquiere and Joanne Beehler are full time real estate investors and have been investing in Ottawa, Ontario, Canada since 2002. They are owners of Spirepoint Properties, a Canadian real estate investing company dedicated to making real estate investing easy.
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