Hello flippers, Melissa here!
A very important part of real estate investing that often gets overlooked (especially when you are first starting out) is the bookkeeping aspect of the business. True, it’s not the most exciting part. I’m sure most investors would rather run around buying and selling houses than spending some good quality time in front of the computer entering expenses and running reports. :) However, taking the time to set up a good bookkeeping system is more important than you think. If you are not interested in doing your own bookkeeping, I would strongly recommend that you find someone who can.
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It is important to:1. Track Property Expenses in Detail - I have a report that I created in Quickbooks that I call the “house detail report”. I can run this report by property address to see every single expense we have incurred—such as paying contractors, property taxes, utilities, loan payments, etc. We use this report frequently and it’s been very helpful, especially when we are ready to sell a property and want to know to the dollar what we have into it.
2. Have a Complete Property File - I keep a wire rack of active property files on my desk. Every document pertaining to the purchase, rehab, and sale of this property is kept. This includes receipts. The receipts are important to keep (especially with the lender situation lately). Buyers and lenders always want to see the receipts for the repairs that were completed after an inspection was done. Once the house is sold and closed, then I purge the file of unnecessary clutter. Until then, everything stays. You never know what you will need out of that file!
3. Be Ready for Tax Time - Although I personally do not prepare our taxes, I am able to give our accountant accurate information. Since I track all of our expenses, she can easily find out what we can write off and help us to project where we need to be by the end of the year. Tracking payments to contractors also allows me to do the 1099’s. You want to make sure that you are getting W-9’s on all subcontractors you are paying!! Your accountant will thank you for this at tax time. If you are doing any owner financing you will also need to track the mortgage interest you receive so you can send them a 1098.
4. Analyze Your Finances Regularly - It is good to take a look at your financial statements at least every quarter. This way you know where you stand financially and can plan accordingly. Once a year we have a big meeting where we go over the Profit and Loss and Balance Sheet in their entirety. We also go over other reports such as Marketing, to analyze where we spend our marketing dollars and where they were most effective.