Understanding Custom Categories (Chart of Accounts) for Real Estate Investors
For residential real estate investors, managing finances effectively is crucial. One key aspect of this is setting up a well-organized chart of accounts, which includes custom categories for assets, liabilities, and equity. This setup is essential for accurate financial tracking, reporting, and decision-making.
What Are Custom Categories?
Custom categories, or a chart of accounts, are tailored classifications you use to organize your financial transactions. For real estate investors, these categories help track various financial aspects specific to property investments, such as income from rent, expenses related to property management, and loans.
Let’s say you have a $20,000 expense categorized under the “Entire Portfolio.” This could represent something like an insurance payment or a property management fee that covers all of your properties. Here’s how you would handle it:
Accurate Reporting: Custom categories ensure your financial reports reflect the true state of your investments, making it easier to track profitability and manage cash flow.
Relevance to Balance Sheet: A well-organized chart of accounts provides a clear view of your assets, liabilities, and equity, which is essential for understanding your financial position and making informed decisions.
Key Categories for Residential Real Estate Investors
Assets: These are resources owned by the investor that provide future economic benefits. Examples include:
Properties: The value of your real estate holdings.
Cash and Bank Accounts: Liquid assets available for investment or operations.
Property Improvements: Costs associated with upgrading or renovating properties.
Liabilities: These are obligations or debts the investor needs to settle. Examples include:
Mortgages: Loans taken out to purchase properties.
Property Taxes: Taxes owed on the real estate you own.
Outstanding Loans: Any other loans taken for investment purposes.
Equity: This represents the owner’s interest in the assets after liabilities are deducted. Examples include:
Owner’s Equity: The difference between your assets and liabilities, reflecting your net worth.
Retained Earnings: Profits kept in the business for reinvestment rather than distributed.
How to Add Custom Categories in Rentastic
Step 1: Navigate to Custom Categories
First, go to “Transactions” and click on “Custom Categories.” Here, you’ll see the new categories listed under Assets, Liabilities, Equity, and Ask My Accountant.
Adding Custom Categories
Click on ‘Add New Category’: You’ll find this option under the assets, liabilities, or equity sections.
Name Your Category: Use clear, descriptive names that reflect the type of account (e.g., “Rental Income,” “Property Taxes”).
Assign to Appropriate Section: Make sure you categorize it correctly under assets, liabilities, or equity.
Step 4: Save Your Changes
After adding your custom categories, save your changes to update your chart of accounts.
Conclusion
Custom categories in Rentastic allow you to create a personalized accounting system that meets your specific needs as a real estate investor. By accurately categorizing your financial transactions, you ensure that your balance sheet is precise and informative, helping you make better financial decisions and manage your investments more effectively.
