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The best games in life have higher risks. To be successful, you must know what you want, why you want it, and how you can attain it. You have to adapt to situations that are constantly changing. To win the game you have to know and understand the rules and play strategically.
Bookkeeping is not the game of property itself. But rather, its that scoreboard that reflects how well your playing the property game.
As a tool, an organised, timely and easy to use bookkeeping system can serve many practical purposes within your property business. For example, it helps you to:
- Keep track of key performance measurements like cash flow, profit/loss, and net worth.
- Compare your growth (or lack of growth) from month to month or year to year.
- Manage and budget your cash so that you don’t run out.
- Know whether certain business strategies are working well or not.
- Analyse which rental properties perform better than others (so you can sell some and keep others).
- Prepare for yearly tax returns without extra stress.
- Save money on tax preparation because your CPA or other professional doesn’t bill you for time spent getting your information organized correctly.
- Avoid extra time and stress digging up information in case of an IRD audit.
- Avoid potential IRD tax penalties or backed taxes because you can’t defend deductions you claimed.
- Pay all of your bills and financial obligations on time as agreed.
- Raise capital with mortgage brokers and banks using real data from past performance.
The list goes on and on; there are just so many practical uses of bookkeeping. In general, good books allow you to set your property financial goals, obligations and make better financial decisions based on your personal data. Successful property investors see their properties as numbers, and bookkeeping allow them to do that.
Majority of property investors will have their own system such as excel spreadsheets or google docs. Tracking every transaction by periodically downloading bank transactions into spreadsheets and organising them. If works its works...right?
As you grow your property portfolio, things can start getting messy very quickly. This can be a monster of a problem to deal with if ignored, leading to late-night bookkeeping marathons.
So if bookkeeping is vital to property investing, how do we do it better?
Take Your Books to the Next Level
Don’t disregard the value of a simple bookkeeping system like excel spreadsheets and google docs. Some property investors go years using a spreadsheet and a small file cabinet to accurately track their entire property business.
But there are so many more benefits to utilising technology in your system, especially as your business gets more complicated with multiple properties, separate companies, and hundreds of transactions. Property portfolio management software with excellent bookkeeping features can make your life easier, either as a stand-alone version on your desktop or a portable, cloud based version such as Kitt.io.
With software like Kitt.io you can get a better understanding of your property investments automatically and see where you're financially positioned. Metrics such as rental yield, capitalization rate, capital analysis, equity (+ debt to equity ratio) and other key performance indicators can be tracked with ease.
Software can automate many of the functions you once had to do manually, like downloading transactions from your bank, and can also take raw data and quickly produce helpful reports on a variety of metrics within your property business.