Your Guide to the Ins and Outs of Real Estate Accounting

When you're in real estate, you tend to think that the most important person is the client looking to buy.

And...okay, you're not wrong. But as a business professional, your relationship to other professional vendors makes a huge difference in the health of your business.

Especially your accountant.

Real estate accounting can take your business into the black. It's all about the numbers. Here's everything you need to know about real estate accounting and how it can help you as a real estate professional.

Who Needs Real Estate Accounting?

But first, let's get clear on something: who needs real estate accounting?

Pretty much anyone who works in real estate.

It seems like a bold statement, but the truth is, everyone has numbers they need to manage. And when you've got a business to run, you just don't have time to manage those numbers yourself.

You could stand to benefit from an accountant if you:

  • Manage real estate for clients

  • Run a construction firm

  • Handle accounts for a housing association

  • Manage an investment trust

  • Provide residential sales

  • Provide commercial sales

  • Run a real estate agency

One of the most basic things you can do to improve your business is taking better care of your books. The problem is that many people don't know how--or just don't have the time.

Understanding the Issues

Of course, accounting is a lot more than just keeping your books in order. It has to do with keeping the real estate industry on track, which is a more important task than you might initially realize.

There are certain accounting regulations specific to the real estate industry. These aren't designed to be a thorn in your side. They're intended to boost real estate's contribution to the GDP, encourage wealth creation and distribution, and prevent the mistakes that led to previous financial crises.

As such, lawmakers are strict about making sure that real estate professionals abide by these regulations in their accounting and bookkeeping.

For example, there are strict rules about things like inheritance taxes, offsetting expenses, and valuing residential and commercial real estate.

How Accounting for Real Estate Can Help You

We've covered how real estate can help you and why it's a necessity, not a luxury. So, how can accounting help your real estate business on the ground?

Evaluate Your Spending

One of the best things real estate accounting can do is to help your business realistically evaluate your spending.

Listen, we get it. It's tiresome and dull to go through every single expense your business incurs. But if you took the time to go through every single bill and expense, you would be surprised to find how often you overspend out of habit or convenience.

An accountant is trained to spot these trends in your spending and help you get on track. You'd be surprised how much more room you can find in your business budget when you're smarter about your money.

Maximize Revenue

The flip side of taking a long hard look at your business expenses is that you can actually find ways to maximize your revenue, not just save money.

For example, while your accountant is checking to see if you overspend on certain accounts, they can also look at your portfolio of properties to see if you should be charging more for rent on certain properties.

Or, they could take a look at your contractor rates to see if you're paying a rate that's equal to the work you receive. We're not arguing that you neglect to pay where payment is owed, but rather that you shop around to find the best deal for your money.

Minimize Debt

Finally, while your accountant is helping your business's dollar go farther, they can also help you minimize your debts.

For example, your mortgage insurance interest rates. When was the last time you took a look at the rate and checked whether refinancing was a sound option? You may even have the option to do away with your private mortgage insurance altogether.

Chances are, you haven't had the time to look at your accounts that closely. An accountant is exactly the person to do that job for you.

Make Your Accountant's Life Easier

That said, for all the good your accountant can do, there are a few things you can do to make your accountant's life a little easier.

Choose an Accounting Method

The first thing you can do? Choose an accounting method to manage your books. Yes, there's more than one to choose from.

Technically, there are two:

  1. Cash basis

  2. Accrual

Cash basis is simple: you make one entry each time physical cash is exchanged, including when income is received (i.e. someone pays rent) or when expenses are paid (i.e. paying for maintenance work).

Accrual accounting records two equal and opposite entries for every transaction to ensure your books are accurate.

There are advantages to both. Some businesses are legally required to use accrual accounting, though, so make sure to do your homework before you settle on a method.

Get a System

Once you know what type of accounting you're using, you need to get a system for your books.

If you can afford one, it's a good idea to hire an accountant to manage the books for you, since they already know what they're doing. However, smaller businesses who don't have the resources to keep an accountant on retainer may use accounting software to do the same job.

Accounting Made Easy

It can be a pain, sure, but real estate accounting doesn't have to be difficult. Especially when you have a professional in your corner.

That's where we come in.

We offer full-service online accounting to keep your business on track, from financial reporting to auditing to tax preparation and filing.

Want to see what we can do for you? Click here to set up your free consultation.