You may be wondering what happened to tips 1 through 20 … they are featured in 81 Financial and Tax Tips for the Canadian Real Estate Investor: Expert Money-Saving Advice on Accounting and Tax Planning
written by Don R. Campbell, George Dube & Navaz Murji.
George is my personal accountant & good friend so I thought I would pass along some of the great tips I use EVERY DAY to run my real estate business.
His book 81 Financial and Tax Tips for the Canadian Real Estate Investor: Expert Money-Saving Advice on Accounting and Tax Planning
, is one of the staples in my business that is marked with post-it bookmarks and highlights so I don’t forget. This is one of the foundation books you need in your library, and the proceeds go to Habitat for Humanity…everyone wins~~
THE Most Important Part of Your Real Estate Business
As most investors, bookkeeping is my least favorite to do… I’m sure we all agree however, it is THE most important thing in business, but so many investors have challenges when it comes to keeping things straight.
Part of my commitment is to help you organize this part of your business so it runs as smooth as possible allowing you to do what you love instead of bookkeeping. (unless that’s what you love to do)
Multiple Accounts?
I’ve been asked many times about setting up bank accounts for properties. This of course, is a personal choice but you should AT LEAST have two: one for personal and one for your business. By the way, the business account doesn’t HAVE to be an actual business account, if you do this; it will cost you more money in fees, so weigh your options and ask your accountant if you truly need a ‘real’ business account.
One of the most organized ways to set up your property’s bank accounts, is to have each venture with its own account. For instance you and your partner a have a venture called ‘JDRProperties’ with three properties. All of the expenses and income for them would go in and out of one account.
Let’s say you have another partner (B) that you own just one property with … again, you would set up a separate bank account for this property. Yet another bank account would be set up your personally owned properties without partners. A word of caution here; you will probably want to limit the amount of properties per account (something like five) just to keep things sane if you own several on your own. Every five properties or so, open another account.
Now keep in mind, multiple properties are valuable, but they need to be managed correctly. Here are some problems you to guard against:
1. Make sure you write cheques from the right account
2. Take care to deposit cheques into the right accounts.
3. When you need to pay one supplier from multiple bank accounts, you need to write multiple cheques.
4. Customers paying rent for multiple properties also need to write multiple cheques.
5. Each account needs to carry sufficient funds, especially if fund management is key to your bank fee.
6. Be mindful that banks may transfer funds to cover shortfall, without your knowledge. (Ask your bank to put a note on the account to guard against this)
7. You will need to maintain a higher cash reserve as each account will need funds to operate.
8. You can expect higher accounting fees, since each account needs to be reconciled.
If you are running your Real Estate as a business, most of the above can be controlled by reviewing your accounts regularly. As a sophisticated investor, your job is to maintain these accounts and have the ability to report to your joint venture partners on a moment’s notice.
Set aside a specific time of day or even just once a week at least to review your accounts. This is not optional, and it will help you identify problems quickly such as negative cash flow or property management issues.
The preceding has excerpts from 81 Financial and Tax Tips for the Canadian Real Estate Investor: Expert Money-Saving Advice on Accounting and Tax Planning
thanks to George Dube, Navaz Murji and Don R. Campbell.
To get your FREE copy of the Real Estate Investor QuickBook cheat sheet click here.
While there are many ways to track your real estate investments from an accounting perspective, one of the primary requirements as Joey indicated is the need to review on a consistent basis regardless of the methodology followed.
Warm regards…
Thanks for your input George! It's true that avoiding a constant review can put a huge strain on your business going forward. Ask me how I know this 😀
Hi Joey. Do you pay any expenses by credit card? I'm running into the trouble where I have one credit card and use it for both personal expenses and property expenses and it's becoming difficult to keep them seperate.
Hey there Shawn,
Awesome question – the answer is yes, I do pay by credit card but have one that is dedicated for business only. That said, I was doing the same you putting business and personal transactions on another card, and what I did was ensure I categorized the transactions for business – whether it was with a software accounting program or writing on the bill statement.
By far, it's easiest to get a secondary card and put all your business expenses on that card – that will eliminate a lot of the manual work separating transactions at the end of each month.
nice post thanks for sharing