Real Estate Bookkeeping

Real Estate Bookkeeping: How to Keep Track of Your Transactions

Tracking real-estate investments/businesses’ finances help you profit, get tax breaks, and make smart financial decisions in tough times.

The US real estate market is in turmoil. Freddie Mac anticipated 3.8 M fewer housing units in 2021 than demand. This supply-demand disparity raised prices and kept many interested purchasers waiting.

Mortgage interest rates rose in mid-2022, deterring many buyers. 1 in 5 sellers lowered their pricing due to the market cooling.

In this unpredictable market, your decision—selling, renting, or expanding—should be based on your real estate’s financial situation. Real-estate bookkeeping lets you evaluate your assets’ finances.

Real-Estate Bookkeeping?

Negotiating with prospects, refurbishing, and producing leads can keep investors and property owners busy. Transactions and receipts are easily lost.

Transactions, receipts, and financial records might disclose your real estate investment’s financial health. You can make key profit-maximizing or loss-minimizing decisions based on those data.

As the tax deadline approaches, many are unprepared and searching for months-old receipts. Proper bookkeeping can prevent this. It simplifies tax filing by organizing transactions.

Real estate bookkeeping activities include:

  • Invoicing renters monthly.
  • Monitoring construction, housebuilding, and other payments.
  • Bank and vendor invoice reconciliation
  • Tax reporting.
  • Financial statements
  • Understanding revenue, costs, and property asset value gains.
  • How can you maximize profit?

Property Bookkeeping Advantages

Bookkeeping is not exciting. You should focus on more vital things like filling your lead pipeline or planning your real estate investment growth. Real estate bookkeeping has three primary advantages:


Real estate owners’/investors’ responses to the American housing crisis vary. Even with high prices, 51% of rental owners don’t want to sell in two years. 56% of sellers would not buy new property.

How do you choose the right action?

Your income statement and cash flow determine this. Financial statements highlight cost-cutting and cash-flow-boosting opportunities.

Updating and using bookkeeping software might give you these insights.

Tax filing and audit backup:

During tax filing, IRS requires income, expenses, and profits. Maintaining your book makes finding and entering those figures easy. Compliance and fast filings also provide tax benefits.

Good bookkeeping software saves transaction documents and receipts. If the IRS audits you by mail or in person, it can save you a lot of trouble. During audits, you can easily prove transactions.

Cash flow:

How to secure rental property cash flow: 1.) timely tenant invoicing, 2.) prompt payment, 3.) not paying vendors till the deadline.

If you generate, track, and reconcile bills, you can do those. Proper bookkeeping covers all of the above.

Little real estate investors can do it alone. To save time, automate and outsource.

Software-generated financial statements can also identify major expenses. Leasing such expenses improves cash flow.

Real Estate Bookkeeping Tips

“Cut expenses” and “get a tax professional” apply to real estate bookkeeping. These are some real-estate business-specific bookkeeping best practices for owners/investors.

Diversify Your Accounts:

New real estate investors often put all their transactions in one bank account. Two key issues:

  1. If you own many rental homes, distinguishing personal from real estate transactions is challenging. If you lose track of transactions, tax filing will be difficult. You may pay higher taxes or be fined.
  2. Commingling finances means mixing personal and corporate dealings. It removes LLC liability protection. If you get sued and have commingled accounts, your personal funds will be at risk.

So open a real estate business account. Several accounts are needed for properties under various LLCs. Security deposits may need separate company accounts, depending on local rules.

After separating accounts, document transactions.

Automated bookkeeping tools help. The utility imports bank transactions directly from your account.

Save all receipts:

The IRS website states that you must keep records of purchases, spending, assets, and entertainment and gift expenses.

Imagine the frustration of searching for months-old receipts before tax day.

So, maintain a copy of your receipts in a secure place and indicate which property they are for. Be sure to scan entertainment, travel, and gift receipts. They attract IRS attention.

Good bookkeeping apps let users upload receipts and link them to bank and credit card transactions.

Sort expenses:

Bookkeeping helps calculate taxable income. Revenue minus expenses yields it.

Revenue includes rent and property flipping proceeds. Before calculating, classify your expenses by Schedule E categories.

Advertising, auto, and travel, cleaning and maintenance, commissions, insurance, legal and other professional fees, management fees, mortgage interest paid to banks, etc., repairs, supplies, taxes, utilities, depreciation expense or depletion (capital improvements), and other expenses

Tax deductions and penalty evasion are increased by categorizing expenses.

You shouldn’t go into taxes alone unless you know what you’re doing. Many real estate investors and owners consult a real estate-savvy CPA.

Yet, a CPA for tax preparation is excessive. CPAs are expensive because they do more than taxes. Instead, hire tax preparers. They’re useful for folks without other financial needs.

Financial statements:

Big paychecks can deceive. If you spent $10k on maintenance and made $50k on a $150k property, you might be on the moon. You may forget that last year you flipped a home for $150k after buying it for $100K and spent $12.5K on it. The first scenario’s gross profitability is 20% lower than the second’s 25%.

Cheques don’t indicate business health. Financial statements must be reviewed regularly.

Three important points:

Revenue: The income statement, also called the profit and loss statement, shows your real estate business’s revenue, expenses, and net income over a fiscal year.

Accounts: The balance sheet shows your company’s assets, liabilities, and shareholders’ equity. It shows your company’s current assets and liabilities.

Cash flow: The cash flow statement tracks incoming and outgoing funds through payments, rent, earnings, funding, etc. (loan installments, expenses, operation costs). A healthy real-estate business has a solid cash flow. You can spend more on renovations, PMs, and marketing.

Excel can construct financial reports. But, you must manually store the data and calculate it, which cuts into your productive work time.

Monthly reconciliations

Reconciling your accounts involves verifying your transactions. Reconcile to find faults, manual errors, and fraud. You’re fine if everything aligns.

Your accounting software can reconcile almost instantly and accurately. If you use one, your recorded and real transactions will likely match.

Reconciling accounts is still advised for bookkeeping.

Reconciliation is the only way to fix the following problems, despite your best efforts:

• Insufficient funds may result in a cheque deposit rejection. That can happen if you set up auto payments and forget to maintain a particular balance on the issue date. To resolve such concerns, pay the full amount plus a $25 returned check fee.

During reconciliation, fix this on your books. If left incorrect, that improper entry would contaminate all financial accounts and predictions.

• Once a bad check is received, it cannot be voided. Your bank may cash it if you don’t tell them. In such cases, you or the recipient get less.

Reimbursing the recipient and writing a correct check is a straightforward repair. If you left your accounting software on its own device, this sudden “disruption” would not be reported appropriately.

When you compare real and recorded transactions at the end of the month, update your books.

• You may have unpaid checks. Financial reporting may be inaccurate if their status is ignored during reconciliation.

• Reconciliation might reveal fraudulent or unwanted transactions.

Step-by-step instructions for reconciling accounts:

  1. Use your bank statement or bookkeeping app to get your bank record.
  2. Look up your real-estate business transactions in your bookkeeping software or ledger.
  3. Review your bank transactions. Record rent, deposits, and vendor payments. Fix any gaps.
  4. Review your bookkeeping.
  5. Deposits in transit, unpaid checks, and banking irregularities can cause bank records to misrepresent cash flow. Record accordingly.
  6. Did you ever pay property A’s vendors from property B’s business account? Did you transfer property A’s rent to property B’s cash flow-challenged account? To represent financial flows, you want to alter such events on records.
  7. After modifications, bank and book balances should match. If not, recheck book entries and transactions.


Understanding your real estate business’s finances will help you through this housing crisis and beyond. Real estate bookkeeping best practices provide this understanding.

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