Like any other business, the real estate business requires strict bookkeeping procedures. That's the only way to realize an excellent return on investment.
In addition, one thing you should know about rental income is that it's now taxable in Kenya. And that calls for precise bookkeeping.
If you keep the wrong records, the Kenya Revenue Authority (KRA) will be on your neck, and you can't hide.
Now, this guide will help you learn about bookkeeping in real estate. In addition, you'll know the critical records you should keep enabling you to calculate the actual profit or loss.
What is Bookkeeping in Real Estate?
Bookkeeping involves recording all transactions happening in a business. You take note of all purchases, sales/rent, payments, and other business expenses. Every record should be against the date it happened to enable more accurate calculations.
In this digital era, you can keep long-lasting records via free-to-use Google tools like photos, Docs, or Sheets. Alternatively, if you prefer physical documents, you can still maintain them. But digital records on Google are safer since you can access them wherever you are.
3 Important Records to Keep in Real Estate Business in Kenya
Rental income is among the main benefits that lead you to real estate investment. A good flow of rental income accompanied by proper bookkeeping can help you retire early with real estate.
Rental income is any income you receive from your property occupants every month. Sometimes you may not have 100% occupancy, but you should keep the records regardless of the situation.
A clear record of this income is vital in determining your cash flow. It will also determine whether you are making a profit or loss. For instance, use the 50% rule to determine your rental business cash flow.
It's crucial to keep records of all expenses incurred on the property. This is an excellent plan to help cut taxes you should have paid. Remember that KRA will be after your profits. And you only get profits by subtracting expenses from the monthly rental income. So the higher the difference, the higher the taxes, and the reverse is true.
Always ensure that everything you buy concerning the property has a VAT receipt. These records help in validating the tax you should pay.
Examples of real estate expenses:
Repairs and maintainable
Staff (you, accountant, and property manager) salaries
Legal fees and any other fees related to the business
All those expenses should be deducted from your gross rental income. After that, you can file returns on the KRA portal itax on the remaining income. Rental income returns are not similar to salary returns. This is because rental property owners file returns before the 20th of every month. For instance, September rent should be filed before the 20th of October.
Since it's a short filing period, you should keep dated expense records to help in proper bookkeeping.
If you got no rental income in a particular month, you'd file nil returns for that month. Remember, fines are associated if you don't file your returns on time, whether nil returns or not.
You should request bank statements regarding the property from the bank and keep them in a safe place. Always ensure you get your bank statements after a month or a few months.
A bank statement will be proof of income flow and expenses payments if you pay using the property's debit card.
You should avoid mixing personal with business expenses because that will lead to unclear records and wrong results. That's why you should have a separate business account.
If you manage your business account well, you can get a business or a mortgage loan to help you expand your rental business.
Benefits of Bookkeeping in Real Estate Business
You have clear records that help you during the monthly filing of rental returns.
With a separate business account, you'll build a credit score, which you can use to get a blanket mortgage to expand your property business.
You will have clear records of your rental cash flow if you use the 50% rule. One-half goes to expenses, part of the remaining half goes to the mortgage, and the rest is cash flow.
You'll also learn about the performance of your rental business. If you continue getting losses, you can find something else to do. Clear financial records help analyse your business during ups and downs.
Bookkeeping can be challenging unless you have accounting knowledge. Therefore, ensure you get a qualified professional to help you keep clear records that will help you make critical decisions. Proper bookkeeping can help your business grow towards the right direction.
Frequently Asked Questions
What does a property bookkeeper do?
They will record all business transactions and the dates they happen. They also keep track of all expenses related to business. In addition, they can help the owners to tax file returns at the required time.
What are essential bookkeeping records in real estate?
The primary skill that a bookkeeper should have is attention to detail. Remember that a simple mistake can lead to wrong results affecting the business. Other essential skills are time management, critical thinking, being an expert in numbers, and good communication skills, among others.
Can Quickbooks software manage a property?
Yes. Quickbooks is easy-to-use accounting software that can help you keep precise and reliable real estate records.