Real Estate Account Best Practices – Bookkeeping and Accounting for Real Estate
Real estate accounting is the recording, classifying, and summarising of financial transactions related to real estate.
It enables you to track and manage transactions, estimate future cash flow, calculate taxes, and make timely payments.
Real estate accounting also allows for comparisons of financial performance over time.
There are two main types of real estate: commercial property and residential property. The property tax varies based on the location of the property, type of property (commercial or residential), age of the property, etc.
Staff management is another important part of accounting, where salaries and payroll are taken care of, as well as commissions for employees working for real estate companies.
And real estate accounting includes five main elements – assets, equity, liabilities, expenses, and income.
What Is Real Estate Accounting, and How Does It Help?
Real estate accounting is the process of recording and tracking all financial transactions related to real estate.
This information uses to improve bookkeeping practices and help property managers make sound financial decisions.
Real estate is a profitable market, but it is also one of the most complicated markets in the world.
Many different types of transactions can take place, and it is important to have a system in place to track them all.
Real estate accounting is a specialised subset of accounting focused on the unique needs of the real estate industry.
Real estate accountants can provide valuable assistance with bookkeeping, asset management, staff management, and more.
In addition, real estate accountants can help you save money on personal property and capital gains taxes.
Real estate accounting will help you with the following:
- Maximise your revenue
- Decrease costs
- Create business strategies
- Keep up with the market trend
- Correctly estimate the real estate value
Key Elements of Real Estate Accounting
Establish Your Operating Costs
Knowing your operating costs is one of the most critical aspects of being a successful real estate professional.
Operating expenses are costs that don’t directly tie to services, like rent.
Some common operating expenses include rent, utilities, insurance, and office supplies.
It’s essential to have a system to balance your expenses, so you don’t go into the red.
Understand Your Commission Model
When starting in real estate, it is important to understand the commission model of the company you are working.
There are a few different types of models that the largest brokerages use.
You should also consider how your take-home pay will be affected by your marketing budget; if you spend more on marketing, you may see a smaller paycheck at the end of the month.
Track All of Your Business Expenses
Whether real estate or not, businesses have various expenses that need to be tracked and accounted.
By proper bookkeeping and accounting, you can keep track of all your expenses in one place and make sure they don’t get out of hand.
This is especially significant for real estate agents who may spend hundreds or thousands of dollars on things like presenting the property to the clients, gifts for buyers, and landscaping services to improve curb appeal.
Consider Cash- vs. Accrual-Based Accounting
Regarding accounting for your business, you have two options: cash-based or accrual-based.
With cash-based accounting, you only record income when the cash hits your account–not when the sale is made.
This can be helpful for businesses that experience a lot of fluctuations in their income throughout the year.
Accrual-based accounting, on the other hand, records income and expenses when they occur, not when money exchanges hands.
This is better for businesses with steadier incomes because it gives a more accurate representation of their financial situation.
Cash-based accounting is simpler and more immediate. Most expenses are paid immediately, so it’s easy to track what’s coming in and going out.
On the other hand, accrual-based accounting provides a more accurate view of a company’s finances since it considers the money that has been earned but not yet received (e.g., invoices).
However, many businesses use the cash model because it’s more practical for their needs – there is no delay between when a service is provided and when payment is received.
Set Up Double-Entry Accounting
Double-entry accounting is a system of bookkeeping in which each transaction is recorded as credit and debit.
This will helps prevent errors from affecting the company’s financial stability by ensuring all entries are accounted for correctly.
While double-entry accounting is often considered complex, it can be a precious tool for businesses that want to maintain accurate records.
Evaluate Monthly Performance
Monthly bookkeeping is important for a real estate business because it can improve performance, forecast costs and income, and evaluate the profit margin.
This information can help you make decisions about your business in the future.
Additionally, your pending listings can give you an idea of what you can expect to make in the future.
You might also like: What are the Bookkeeping Goals and Objectives?
Complexities in Real Estate Accounting
The feeling overwhelmed by bookkeeping is widespread.
Additionally, comparing financial performance over time, estimating cash flow, calculating tax returns, and making timely bill payments are crucial aspects of real estate accounting that should not be overlooked.
The property tax is based on the location and what the land is being used.
And if you are new to this, then all this might feel a little complex.
How Can Real Estate Accounting Be Used to Save Money on Taxes?
Real estate accounting is a specialised form of accounting that deals with the financial transactions and records of real estate businesses.
This type of accounting can be used to save money on taxes, as it allows you to track your profits and losses more accurately.
Property management also involves huge sums of money, and proper tracking of all transactions is essential to keep everything organised.
It can help you save money on taxes by monitoring the progress of your properties and giving you a better understanding of your financial statement, tax return, and bill payments.
In addition, comparing your financial performance over time will give you a better estimate of your cash flow – allowing you to make more accurate decisions about your investments.
Conclusion
Real estate accounting is critical to keeping track of the financial dealings within a real estate company. In addition, without accounting, it would be difficult to gauge the progress of the business and understand legal entities. A few mistakes that are commonly made in real estate accounting: failing to separate personal and business expenses, incorrectly tracking depreciation, and not filing taxes correctly.
If you need accounting help, you can get in touch with us, and we would love to help you out.
