Finances are one of the biggest parts of real estate investment. We might not all be number-crunchers but knowing how to best track and manage both your investment income and expenses is one of the key attributes of a successful real estate investor.
However, tracking your investment income isn't always as straightforward as balancing your average checkbook.
Here are our top tips for tracking, compiling, and organizing your real estate income and expenses.
Top 6 Tips for Organizing Investment Income & Expenses
Make use of reports from your turnkey provider.
One of the advantages you have as a turnkey investor with Memphis Invest is the provision of regular data and updates courtesy of your portfolio advisor. With these regular updates and information provided, you can easily see financial and performance data. It may be tempting to look at this information during your meeting time with your advisor and not look at it again but take advantage of its availability.
As you gather reports, use the information therein to compile a big-picture spreadsheet that demonstrates the whole. Even if you have access to a more “sophisticated” set of data through your turnkey partner, the act of making and compiling the data for yourself is useful in truly understanding and recognizing it.
Spreadsheets are a powerful tool in organizing expenses, income, and tracking taxes. While you can format spreadsheets to do automated calculations and mathematics, it is not necessary for your data organization to be effective.
You can keep a spreadsheet document that tracks a property's income and date received each month (tracking cash flow) as well as a page tracking your expenses as owner: insurance, taxes, interest, and emergency repairs that may demand your attention.
These will also come in handy when you need to account for everything for your taxes, especially if you have already kept track of the corresponding documents.
Keep your bank accounts separate.
One thing we tell investors is that there is wisdom in keeping a separate bank account for one's real estate investing. This is not only to make things easier when it comes to taxes but also so that the process of paying for repairs and saving for another investment property acquisition is a cleaner, more streamlined process.
When you keep your bank accounts separate, should you fail to keep track of your income and expenses manually, you won't have to sift through your personal checking account to find the transactions you need. It will be neat, clean, and all in one place.
Break down data into categories.
Real estate investment finances can get complicated, especially when you begin to juggle multiple properties. It's valuable here to break your expenses down into categories. Keep track of your taxes separately, as well as your insurance. Tracking repair expenses should be another beast entirely, complete with dates that repairs were performed. This is, again, kept up with by your turnkey provider, but it is beneficial for you to keep it in one place and tracked as well.
Keep digital and hard copy receipts.
Though we live in a digital age, it is always wise to keep both digital and hard copies of any given finance information you have: data, tax information, receipts, what have you. You can easily scan documents with modern phone apps if you don't have access to a traditional scanner. You can then save these to a computer and then a backup hard drive. Organize documents carefully by year and category.
For hard copies, keep a filing system in much the same way: organized by year and category. Invest in a sturdy filing cabinet, preferably fireproof and with a lock. It's better to be safe than sorry when it comes to important documents.
Utilize financial tracking platforms.
While certainly not necessary, you can also take advantage of any of the increasing number of expense-tracking platforms designed for real estate investors. Stessa is just one of these emerging platforms worth looking into if you think your own spreadsheet just won't be enough. It helps you keep track of your properties, helping you not only be tax-ready but to fine-tune your investment strategies based on the financial reports therein.
With so many digital tools at our fingertips, passive real estate investors have a massive advantage. We have information and more ways than ever to synthesize that data into a real plan of action to create the financial future we truly desire.
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