As an investor, it’s essential that you know the importance of keeping accurate and up to date books. After all, how else would you be able to plot your next steps and build on key investment strategies? In order to evaluate your investment portfolio’s success, clean and accurate data is a must, but there’s more you can do to increase the power of your financial data.
As a bookkeeping firm for women in real estate, we employ the most in-depth, industry specific strategies to give our clients the most value possible from their financial data. That means using methods of tracking your finances that may not be obvious to general bookkeeping professionals. Today, we are sharing some of our best hacks for women in real estate investing to maximize their numbers and make powerful investment decisions. Let’s get started!
Hack #1: Use Class Tracking for Real Estate Investments
Class tracking is a function available in some subscription levels of QuickBooks Online that allows you to track accounts by business entity, investment type, property, or any other meaningful breakdown of your business. Many businesses with multiple properties or entities will employ class tracking as a method of differentiating between those. For example, if you own 3 buy and holds, you could set up 3 classes and track income and expenses by class. This would allow you to run a profit and loss report for each property individually and more easily gauge the performance of those investments.
Real Estate investors can also use this tool to their advantage by separating classes by investment type. This will allow you to see your profit and loss statement for each type of investment and draw conclusions about which investment strategies are most profitable.
Hack #2: Use Customer, Sub Customers, or Project to Avoid Using Too Many Accounts
In the process of accomplishing hack #1, you may find yourself creating tons of accounts in order to pull certain financial reports. Let us caution you – too many accounts will lead to long and skinny financial reports that are difficult to read and understand. Want to keep it clean, simple, and easy to analyze? Use customer, sub customers, or projects to differentiate within accounts instead! This will allow you to effectively pull data about your investments and better understand your investment strategies on a case-by-case basis. It will also make it easier to compile data in your advanced reporting dashboard and pull quick key performance indicator (KPI) reports for your business.
Hack #3: Create a Standard Procedure for Categorizing Income and Expenses
Organizing your accounts to pull useful financial data is only the first step in fully utilizing your financial data. Now that you have the infrastructure set up, the next step is to record your data in a way that will allow you to pull reports and aggregate meaningful data. In order to do this, you will need to adopt a standard for how you will categorize income and expenses. Oftentimes, investors only think about tracking income by property and forget to look at the big picture. In order to really understand your investment strategies’ success, you’ll need to categorize expenses as well. Just make sure that for each class, customer, project or tag, that these expenses are categorized the same exact way. Then, when you evaluate breakdowns of certain types of spending, you’ll be comparing apples to apples!
Once your financial data starts flowing in this manner, you’ll be able to clearly see the cost of each property, which can be especially helpful for investors who take on flips and rental properties. When you are able to see exactly how much it takes to fix, maintain, or sell each property, you will be able to easily identify how much you need to sell or rent the property for in order to make a good profit on your investment. It can also help you identify areas for improvement. For example, you may realize that you’re spending a lot on marketing your homes that are for sale but that they’re being sold extremely quickly. In this case, you can cut your marketing spend and boost your profits! How’s that for a win!?
How to Use These Hacks to Boost Your Investment Strategies
All three of these bookkeeping tips for real estate investors work best when utilized together. Here is an example of what can happen when all three come together:
Jennifer is a real estate investor with three vacation rental properties. Using class tracking, she realizes that her vacation rental properties are much less profitable than other types of investments. She reviews her financials that she has set up for each vacation rental property and realizes that the COGs on one of the properties is extremely high due to frequent repairs. Upon further investigation, she realizes that a lot of these repairs are due to damages by vacation renters. She adds a security deposit to the rental, increases the age requirement to 25, and modestly increases the nightly price of the rental. In a few months, she will check back to see what impact these changes have made on the profitability of this property.
In this scenario, Jennifer may not have even realized that she needed to change her strategies if she hadn’t been able to see the problem at a birds eye view and then zero in on the cause and effect. As a result, she will run a much more efficient – and profitable – real estate investment business!
