The goal of bookkeeping is to have an accurate record of all the money going in and out of your business. Also known as “doing the books,” bookkeeping is a vital task in your rental property business and something that is not optional, but required. There are several benefits to being organized in this way, such as freedom, legality, and profitability. When you know exactly how your business is doing at any given time, you are able to make better decisions and sleep more easily at night.

1. Keep things separate.

The first rule of bookkeeping for your real estate business is to make sure you keep your personal expenses 100 percent separate from your business expenses. Not only does this make the bookkeeping easier, but also from a legal standpoint it’s a bad idea to commingle personal and business funds, especially if you are using (or plan to use) an LLC or other legal entity. So set up a separate account for your real estate investments; this includes a separate bank account,

When itemizing the income and expenses, the best to categorize them in the same categories that the IRS lists on Schedule E, the form you’ll need to fill out each year at tax time. The expense categories that the IRS defines are:

  • Advertising
  • Auto and Travel Expenses
  • Cleaning and Maintenance
  • Commissions
  • Insurance
  • Legal and Other Professional Fees
  • Management Fees
  • Mortgage Interest Paid to Banks, etc.
  • Other Interest
  • Repairs
  • Supplies
  • Taxes
  • Utilities
  • Depreciation Expense or Depletion (we call this Capital Improvements)
  • Other

Therefore, we try to place every expense into one of these categories.

Of course, there is the “other” category if something just doesn’t seem to fit, but we seldom use this. It’s just easier to make it fit within one of the other listed categories.