Dealing in real estate and investment property can be quite lucrative yet very tasking. This is because you deal with large sums of money, which makes proper real estate accounting a necessity. Making mistakes when accounting for investment property can cause serious problems for you as a real estate agent or professional. It can cause you to lose millions, while affecting your reputation as a professional. As such, it is important to avoid making accounting errors. This article highlights five common errors to avoid when accounting for investment property.
Five Common Errors in Real Estate Accounting
Lack of Separation
One of the common errors made by real estate professionals is, the lack of separation between personal and business accounts. Like every venture, it is important to have a separate account for your real estate business. This will help you to keep track of every business transaction made. Failure to keep these accounts separate will cause accounting mistakes that might cost you millions.
Failing to follow due process when filing your tax can cause some difficulties for you, as a real estate professional. The two main methods for filing taxes are the accrual method and by using cash. It is important to consider which tax filing option is best for you before you commence filing. Using the wrong method will leave you struggling with tax problems for many years.
Disbursing Funds Beforehand
One mistake that a lot of real estate professionals make is disbursing funds before a transaction is complete. While it seems harmless and time-saving, this practice comes with big risks. In the case that an unforeseen event comes up, the details of the deal might change, creating complications with the disbursed funds. Complications that come with disbursing funds beforehand include, reissuing of checks as well as reversal of transactions. It is therefore best to wait until the deal is closed, complete with property registration and exchange of key before disbursing funds.
There is no bigger error in real estate accounting than leaving your books to be handled by an amateur. An amateur is prone to mistakes that could affect your business and cost you money and professional credibility. It is best to hire an experienced professional to handle your books, particularly someone who is a seasoned real estate accountant. This will save you a lot of time, money, and stress in the long run.
Failing To Back Up Data
With the growth of technology in today’s world, there are enough means of backing up data. Backing up data helps you to keep important information, such as property information and client details. Failing to do this can have serious implications on your accounts.
Putting in place a proper system for accounting is crucial for every real estate firm. It is best to hire a seasoned professional, in order to avoid making any of the errors listed above. All in all, always ensure to get your accounting in order, while looking for where to buy investment property.