What is one of the most important aspects of flipping San Diego homes that many real estate investing ‘gurus’ and reality TV stars frequently omit?
There are many things you need to learn when flipping San Diego homes. You must, at minimum, receive a basic real estate education. Doing so will give you a general knowledge of how the real estate transaction process works, the importance of due diligence, risk mitigation and how to juggle money demands successfully. However, little mention or attention is ever given to proper record keeping.
It is easy to get caught up in the excitement of flipping San Diego homes while participating in daily bidding, overseeing contractors and signing closing documents. However, neglecting to keep well organized records of every transaction can serve to cripple your business.
Costly mistakes are often made when investors balance invoices, obtain financing and attempt to maximize potential returns. However, even more significant perhaps, is the impact record keeping has on taxes.
No one may like dealing with taxes, especially those flipping San Diego homes with the intentions of living an entrepreneurial lifestyle. To many, taxes are an annual burden that should be done away with. However, all of your hard work will mean nothing if you lose your profits to the IRS for neglecting to have the required paperwork.
Good records make the tax process a lot less stressful and time consuming. Accordingly, good bookkeeping facilitates maximized deductions and write-offs. Perhaps even more importantly, well-kept records protect you during an audit.
If you do get audited, and especially if you have been slacking on filing income taxes, you will likely lose the opportunity to claim all of those deductions.
Note that this doesn’t only apply to receipts and bank records. Faulty reporting has become an increasing problem to the IRS. False reports filed by banks and title companies have recently resulted in real estate investors being charged with hundreds of thousands of dollars, and even millions, in income they never received. Sadly, if you don’t have your copies of HUD settlement statements, loan payoffs, interest paid and rehab and closing expenses, you could end up with a giant tax bill you shouldn’t.
So be smart. Be diligent about using some sort of accounting software (or hire someone to do it) and make backups of important documents. Leverage cloud storage services like Drive or Dropbox to make sure nothing is ever lost and everything is accounted for. Flipping San Diego homes requires a lot of paperwork, so make sure you are prepared to handle it.