Basics of Real Estate Accounting and Its Importance
Real estate is an eminent business domain, and like every other business, accounting plays a huge role here. Accounting is often referred to as the backbone of an organization as it helps manage and optimize its financial resources. Unfortunately, many real estate professionals fail to incorporate real estate accounting into the business hence suffering losses.
You can see fortunes being made and lost every year in real estate. But only a real estate investor with good knowledge of accounting stands a higher chance of success than those who don’t. That’s why it becomes extremely important to understand the basics of real estate accounting and its importance for the business.
From monitoring expenditures to analyzing profits, there are ample terrific reasons to hire an accountant for your real estate business today. In addition, modern-age accounting like cloud-based software and integrated platforms is the need of the hour.
So, let’s dig further into the fundamentals of real estate accounting and its importance.
Who Needs Real Estate Accounting?
Running a real estate venture isn’t a cakewalk. Anyone who is involved in managing properties must hire for real estate accounting. Firstly, an accountant can help you come up with a business plan. Secondly, they can handle the finances of the business better than anyone making the business run efficiently.
Accounting is crucial for a real estate business as property management is linked to many financial aspects. Essential factors like analyzing profits and losses, handling expenditures, and evaluating properties’ success need to be handled precisely. Major sectors that need to incorporate real estate accounting are investment trust managers, real estate agencies, housing associations, and construction firms.
Accounting is much more than just handling finances. Thus, we have come up with the top five reasons accounting is important for a real estate business.
What are the duties of a real estate accountant?
A real estate accountant is in charge of several financial duties involved in the administration of real estate assets. A real estate accountant’s primary responsibilities include:
- Bookkeeping: maintaining accurate financial records, including rent roll, accounts payable, accounts receivable, and general ledger.
- Budgeting: creating and maintaining the budget for the property, predicting income and spending, and keeping track of cash flow.
- Financial reporting: preparing financial statements, such as balance sheets, income statements, and cash flow statements, and providing regular updates to management and stakeholders.
- Tax compliance: ensuring that all local, state and federal tax rules and regulations are upheld by the property, including timely filing of tax forms and payments.
- Audit preparation: Getting ready for and taking part in audits, answering questions from auditors, and making sure the essential financial data is precise and current.
- Lease administration: Maintaining correct records of lease agreements, rent rolls, and security deposits; monitoring compliance with all lease requirements.
- Investment analysis: Examining potential investments and making suggestions to management, including pro forma financial projections, market analysis, and property appraisals.
- Cost control: identifying potential cost-cutting opportunities and putting cost-controlling tactics into practice, such as negotiating better prices with suppliers and contractors.
Overall, the role of a real estate accountant is to ensure the financial health and stability of a real estate property by providing accurate and timely financial information, managing budgets and expenses, and complying with tax laws and regulations.
Top 6 Reasons Why Real Estate Accounting is Important
1. Maximizing your business revenue
As an investor, the only way by which you can maximize your income is by bringing down the expenses. Another way might include a close review of every work and transaction related to contractors or realtors, checking if it’s justified. Apart from that, you can also analyze your business portfolio to see if you can increase the rents on your rental units for providing extra amenities.
Now, all of these aren’t overnight tasks and need ample time and accuracy in numbers! Managing the real estate business while acting on these factors can be a daunting task. However, as a real estate accountant’s daily task includes analyzing the daily figures, they can certainly ease your job. They can suggest to you the best possible ways to maximize your business’ revenue efficiently.
2. Evaluating expenditure
Cash outflow is something where you can’t afford to make mistakes. Going through each and every transaction where you are spending money is highly prone to human errors. Even if you guarantee accuracy, it can be a time-consuming process. You can’t just leave your business operations and sit and calculate all day.
Therefore, real estate accounting outsourcing comes to the rescue and helps you manage the company’s expenses. An accountant analyses your daily expenses and checks whether you’re overpaying for goods and services, and seals all loopholes. It covers all the areas like office amenities, property taxes, Insurance, and utility bills.
3. Minimizing business debt
Every business aims towards minimum debts as debts can prove to be an ultimate threat to an organization. Hiring a real estate accountant can save a fortune every time you invest in a property. An accountant carefully analyses different interest rates on credit cards and mortgages and helps you transfer your high-rate accounts and balance to zero interest rates.
Here you can read about What Are Real Estate Accounting Apps? Why Should You Use It?
4. Estimate the value of your real estate
Real estate accounting facilitates the calculation of key financial indicators by which you can measure any progress in your business. While you must be straining yourself from analyzing all the factors on your own, professional offshore accounting can ease the job. Therefore, you’ll have a more relaxed time going through critical aspects such as your net worth, profits and losses, GP analysis, and your organization’s cash flow.
In the real estate business, transactions might be less frequent. This is because a single property might remain in the same hands for a long time, so it can be hard to determine its current value. Now, most real estate valuations are based on estimates, so the actual value of any transaction remains unknown. However, good real estate accounting software can help in the accurate evaluation of assets.
In addition, professional accounting follows valuation regulations carefully and helps you keep accurate records.
5. It helps you devise business strategies
A business strategy can be a make-or-break factor for an organization. Professional real estate accounting can assist you in developing effective business strategies. You can easily compare year-over-year growth and identify properties that are performing well or poorly. Accounting also provides you with performance data so that you can plan a capital raise.
In this way, accounting plays a vital role in planning and implementing business strategies.
6. Stay updated with the market
Meticulous bookkeeping keeps you updated with property tax updates. So, you’ll be able to prepare your overall tax returns without much hassle. The tax requirements and implications vary according to different types of properties. Thus, your accountant can help you keep up with the best property options while adhering to the latest tax implications.
The proper research and professional approach can prevent you from investing in something risky.
Must Read What Experts say about Offshoring Accounting & Bookkeeping
Why Offshore Accounting for Real Estate Business?
While managing your company’s real estate accounting yourself to cut down on costs might sound tempting, it can be a hectic and risky job. The best way of outsourcing this task is by hiring an offshore accounting agency.
Apart from several benefits discussed above, it is cost-effective for your organization due to low labor costs and several tax benefits. Businesses achieve 70% cost savings by outsourcing their accounting function through offshore agencies.
Offshore Accounting significantly helps in achieving such goals that your employees might not be able to handle. With the latest accounting technologies like cloud-based accounting software, you can ensure safe and efficient finance management. By hiring certified offshore accounting company services, you can focus on essential business operations while ensuring that your company’s finances are in safe hands.
Why choose CapActix for offshore real estate accounting?
Such concrete steps end up making a huge and positive impact on your business in the long run. Accounting remains an integral part of real estate, so; if you are looking forward to a successful real estate business, you have to take accounting seriously. Hiring an experienced offshore accounting agency offers you incredible benefits for your organization’s finances.
That’s why CapActix emerges as the one-stop solution for your company’s finance and accounting needs. From bookkeeping to payroll management, our latest accounting solutions emerge as integrated software that will streamline your accounting work, providing you with more time to grow your business.
Getting started sooner is the best way to measure your business’s current financial status and set benchmarks and goals to help your business thrive.
Visit us at Capactix to know more about real estate accounting services and other tax-related regulations. Contact us at +1 201-778-0509 or reach out at [email protected].