Accounting Tips for Real Estate Investors and Property Managers

Buying, selling, and managing properties is where the fun is at. But bookkeeping? A big mumbo jumbo. However, most successful enterprises are founded on a solid foundation of keeping track of your cash inflows and outflows. Managing your finances well can streamline your cash flows and help you to spot issues that you can rectify and take advantage of while filing your tax returns.

  • Real estate accounting involves tracking income, expenses, assets, and liabilities related to properties.
  • There are various elements of real estate accounting, including assets, liabilities, equity, income, and expenses, which need to be kept in mind when accounting.
  • Lenders will require your professionally prepared financials to approve your loans.
  • Some common tips for effective real estate accounting include opening a separate business bank account, separating personal expenses from business expenses, keeping copies of all receipts, categorizing expenses, and monitoring performance metrics.
  • You will have to choose between the cash basis or accrual basis for accounting method and notify the IRS (Internal Revenue Services) if you make the change.
  • The state's local real estate agencies determine the best accounting practices, so you should be familiar with your state's regulations.

For real estate accounting, there is more to it than just keeping records. You must also prepare financial reports and budgets, which will help you forecast your real estate performance and develop projects. Understanding your accounting can be beneficial for you not only overall but also in framing in-depth performance metrics to recognize great deals.

In this article, we will discuss the elements of real estate accounting, and we will also provide you with tips for using accounting in real estate.

Elements Of Real Estate Accounting

In real estate accounting, there are various elements that affect your transactions. To record accurately, you need to address them properly. Consider these elements when you are bookkeeping:

  1. Assets: Assets are those resources that the company owns and are considered to have value to meet its debts, commitments, and business needs.
  2. Liabilities: Liabilities can be understood as the debt that a company owes, such as mortgages and loans. There are two types of liabilities: current liabilities, which need to be paid within a brief period or one-year duration, and fixed liabilities, which have a period of more than one year.
  3. Equity: Equity refers to the remaining stake, share, or value of property in net of a company's assets and its liabilities. Equity represents the value of the company.
  4. Income: Income is the money that the company or business receives for its work or services. In the real estate business, income can be generated through renting houses or selling properties.
  5. Expenses: Any cost that is associated with business operations is an expense. Maintenance and repairs, training, travel, management fees, etc., can be expenses in the real estate business.

You will mostly deal with these elements while accounting for your daily transactions. Most investors and property managers prefer to hire a full-time accountant to handle this work. It is best to have an expert do it for you rather than attempting to do it yourself. If you feel confused or do not understand, seek help from professional experts. An investor-friendly CPA® can assist you by providing guidance and knowledge in accounting, ensuring the best returns on your investments.

Essential Real Estate Accounting Tips

Having the knowledge and education is not sufficient to keep your records. Here are some tips that you can follow to save time and money on your real estate investing business.

Business Bank Account

When your personal finances and business finances are mixed, things can get quite messy and complicated. Your legal advisor will hate it when this happens. There are two aspects to creating separate business account:

Legal: You are not allowed to co-mingle for legal protection.

Tax/Accounting: You are not required to have separate accounts. However, having separate accounts will help you sleep at night. It helps you be more organized and have easy record-keeping.

You should open a business bank account for all your business transactions, separating your personal transactions from your business transactions. This way, you can have an overview of all your business activities, which makes your accounting accurate and easier. Having both your personal and business transactions in the same bank account can be overwhelming, and there is also a considerable risk of mistakes and errors in accounting.

Separate Personal Expenses

Just as you would have a separate bank account for your business transactions, it is also important to keep your personal expenses separate from your business expenses. This will prevent any confusion when recording transactions. Separating expenses will make it easier to claim every deduction, which can help reduce your tax burden and save you money.

All Receipts and Copies

We recommend that you keep copies of all receipts from transactions to make it easier to record them in your accounting records. Sometimes we tend to forget to record transactions, and having receipts as a reminder can help you stay organized. You can simply scan or photograph receipts for easy reference.

Expenses Categorization

After keeping all the transaction receipts, it will be easy to categorize your expenses. This will come in handy when you file for taxes. It is simply to categorize your income and expenses; you can use IRS lists on Schedule E to organize your transactions.

Performance Metrics

You should set up a routine to check all the performance metrics of your business. Performance metrics such as vacancy rates, gross income, net operating costs, and cash flow can help you determine if your business is profitable. This can also help you identify areas where you can reduce costs and wastage. Additionally, it facilitates the formulation of an investment strategy.

Follow Regulatory Accounting Practices

You are required to inform both state and local authorities about your financial handling. These regulations may vary depending on the location where you operate your business. The accounting practices are determined by the state's local real estate commission or other agencies. You should ensure that you are familiar with all the regulatory practices to ensure compliance.

Choose An Accounting Method

You can choose between two methods to report your income and expenditures to the IRS: cash basis or accrual basis. It depends on your business to choose which accounting method you want to adopt. Both methods have their benefits and drawbacks. It is always best to consult with experts to determine which method you should use for your business. You will have to notify the IRS to change your method.


Taxes can be complicated as you grow your business. You will need to keep track of all the transactions and record them to compliance with tax law. We suggest you seek the help of a professional CPA with some level of experience.

Investor Friendly CPA® consists of teams of professionals who can provide you with guidance and expertise to make sure your accounting is on point.