Real Estate Bookkeeping: A Basic Guide

Many people from different walks of life have strived to buy or invest in properties. However, the real estate industry has witnessed some of the major crises, leaving many people nothing but significant damage to their assets. 

The most destructive one was the collapse of the U.S. housing market due to the financial crisis in 2008. After almost a decade later, when the real estate industry has gradually recovered, and people have started to feel a sense of stability, there comes another wave hitting the industry once again – the Corona pandemic. 

Hence, understanding the driving factors that change the price of real estate is helpful in improving your real estate bookkeeping. You can make better financial analyses and more rational decision-making for your properties. 

Real estate bookkeeping guide 

What can impact the growth of real estate?

Demography

The baby boomers born from 1946 to 1960 have been ending their working careers. The number of people heading to retirement will then go up dramatically. These people tend to sell their houses after that, resulting in an ample supply and lack of demand in the housing industry. The price of your properties might go down eventually.

Moreover, the U.S. will have a smaller workforce, and production will decrease. As a result, fewer people invest in the market, foresaying another financial disaster in the near future.  

Technology

It goes without saying that technology has constantly been growing in recent years. The advancement of blockchain technology has transformed the whole real estate industry. Instead of conducting offline transactions, blockchain has allowed us to trade real estate on digital platforms in many ways. This can lead to a cost down due to eliminating intermediates, saving a lot of dollars, and changing the properties’ price. 

Optimistic forecast by analysts

Analysts place an essential role in shaping investors’ perception of real estate and changing their decision-making. One of the most valuable things we can withdraw from the financial crisis in 2008 is not to always trust the analysts because they also make mistakes. They were confident that investing in mortgages was the best of the best, with nearly no risks involved and high returns. The credit rating agencies also overrated the mortgages with poor credits, making the investors throw loads of their money into the housing market in the U.S. Then, when the housing bubbles popped, not only the investors but the whole economy had to suffer. 

Real estate is a very capital-intensive industry. Every wrong decision would cost you thousands to millions of dollars. Therefore, you must equip yourself with fundamental financial knowledge to predict the changes in real estate, adopt rational thinking, and make a more accurate decision. Let’s start with the basics: bookkeeping. 

What is bookkeeping? 

Bookkeeping is the process of recording all the transactions. In simpler terms, it means that whenever you purchase, sell, borrow or loan something, basically everything monetary, you have to jot down the details, such as the name of the transaction, the date, or the amount of traded money. The products of bookkeeping are financial statements. These statements are then analyzed to understand your financial performance and plan the next moves. 

Let’s look at this example: You have $100,000. You borrow a bank $400,000, and you then buy a $500,000 house. 

How many transactions are there in this example?

The answer is two: transactions between you and the bank and between you and the house-seller. In reality, the trades are more complicated with more accounts that you need to take into more consideration. 

Why do you need efficient real estate bookkeeping? 

Easy reporting to the externals

The creditors (such as banks) or the IRS need to view and get updated about your current net worth and gains from your properties to quantify appropriate interest rates or tax rates. All the financial statements, including the balance sheet, income state, or cash flow statements, demonstrate all the value of your real estate. 

Better Decision-Making

The bookkeeping provides you with organized financial statements, helping you with more straightforward at-a-glance checking. An efficient bookkeeping process can lead to accurate information, assisting you in better analyzing your current net worth and real estate performance. Besides understanding current financial capabilities, bookkeeping makes you review past transactions and figure out what works and what does not. Therefore, you can have better planning for the next moves in the future. 

Tax preparation

You have to pay taxes on your properties based on your financial statements withdrawn from the bookkeeping process. Real estate is taxed at ordinary rates, but fortunately, with deductions.

You need to file a tax return every year, whether you are just an individual or a business owner. Having bookkeeping functioning in place can save you a lot of time and effort. But it is not an easy task for everyone. Millions of business owners have to scramble all-around their offices to track down all the bills and record the transactions. Does it sound familiar to you? If so, don’t worry. You can outsource to a third party to record your expenses. Shoeboxed is a very reliable service, using both A.I. and specialists to track your bills, helping you get rid of paper receipts in your desk drawers. All you need to do is scan your receipts, then you can get access to organized documents containing accurate data for your at-a-glance expense tracking. Moreover, the bills are kept in “digital forms” on the cloud for 3 to 5 years with Shoeboxed, so you don’t have to be afraid of missing paper bills anymore. 

Real estate has become a symbol of one’s affluence and power, especially in the United States. If you get married, the first thing that may come up in your mind is buying an ideal and cozy house where you can raise your kids. And if you are a business owner, investing in real estate is the first step to grow your business. Last but not least, if you are a financial investor, real estate is a good bet, as it can bring you passive income, freeing yourself from exhausting labor hours, and gives you a lot of tax advantages. Prepare yourself with sufficient financial knowledge to make the best out of your investment in those properties.