Real Estate Bookkeeping Cleanup and Catch-Up

What is a real estate bookkeeping cleanup?

A cleanup rebuilds past months or years of books from the source documents, deal by deal, so each property's costs and profit are correct. It is a one-off project that comes before monthly bookkeeping.

The rebuild starts from the records, not from an old ledger. Every cost lands on the property it belongs to, and every account is reconciled at the end of each rebuilt period.

A rebuild also corrects the ordinary errors found along the way, such as a transfer counted as income. Our guide to real estate bookkeeping mistakes lists the usual ones and how each is spotted.

Which of the three situations are you in?

There are three: no books at all, books that exist but do not separate deals, or clean books kept by someone else. Pull one closed deal and see whether you can tell what it made.

1. 1No books at all. Pull your last sold property. Is there any record of it beyond the bank statements? If not, you are in case 1.
2. 2Books that exist but are not per deal. Pull your last sold property. Can you see what that one deal made, on its own? If not, you are in case 2.
3. 3Clean books kept by someone else. Pull your last sold property. You can see what it made, but the books sit with another bookkeeper or in another system? Then you are in case 3.

Here is the one-deal test on Project 4, 2200 Test Ct, Rancho Cordova, from the sample report for Demo Flips LLC.

A $140,000 gap looks like a good deal. After the closing and loan costs, the rehab, $31,652 of holding costs over 216 days and the selling costs, the deal lost $6,469. Books kept per deal show that on one line. In our experience, the flippers who know what every deal really made make better decisions on the next one.

How does a cleanup actually work?

We collect the statements, closing statements, invoices and loan records for the period, rebuild each deal from them, reconcile every account, and hand over a set of books with an exception log.

1. 1Collect. You share one folder in your own Dropbox or Google Drive and drop the documents for the period there. Escrow documents go to a dedicated mailbox set up for you, or we request them from escrow with your authorization.
2. 2Rebuild each deal. Every transaction is recorded against the property it belongs to, from the purchase closing statement to the sale.
3. 3Reconcile. Every bank, card and loan account is reconciled at the end of each rebuilt period.
4. 4Hand over. You receive the rebuilt books, the exception log and a per-deal report for the period.

What do you need from me?

Bank, card and loan statements for the period, closing statements for every purchase and sale, rehab invoices, and your lender's draw records. We work from documents, not from memory.

• Bank, card and loan statements for every month in the period.
• Closing statements for every purchase and every sale.
• Rehab invoices and receipts. Photograph paper receipts into the folder or the mailbox.
• Your lender's draw records for each property.
• For cash with no receipt, a short note: date, amount, property and what it was for.

Personal email access is never required. No bookkeeping software is required either. To keep the same documents together each year, use our year-end bookkeeping checklist.

To gather everything a rebuild works from in one folder before it starts, use the bookkeeping cleanup checklist.

What happens to the things that cannot be worked out from documents?

They go in a written exception log rather than being guessed. Each line says what could not be settled and what would settle it. Nothing is invented to make a column balance.

A 3-line exception log for Demo Flips LLC, using the open items from the sample report.

Sample exception log.

The log comes with the books at handover. Each line is a question to answer or a document to send. Once it is settled, the line is recorded like any other transaction.

What if I am coming from another bookkeeper or another system?

Your history comes with you. We take the existing file, check it against the source documents for the period, correct what needs correcting, and carry the balances forward rather than starting again.

This is case 3 from the list above. The file can be QuickBooks, another bookkeeping program, or books kept by a previous bookkeeper. Deals kept together in one pool are split out by property. If you want to keep QuickBooks afterwards, that works too.

What happens when the cleanup is finished?

You get the rebuilt books, the reconciled accounts, the exception log, and a per-deal report for the period. Monthly bookkeeping then continues from that point, with the same per-deal reports every month.

The per-deal report is what the rebuilt books produce, in the same format as our real estate bookkeeping report example. From the handover on, the books are reconciled and closed every month, and you receive a per-deal profit and loss every month.