We invite you to experience a new way of doing real estate accounting.
We believe that if we invest in our people's professional and personal growth, and make business decisions with our people's well-being in mind, we'll leave a positive impact on the world that far outlasts the successful delivery of a tax return or financial report.
Accounting for Real Estate-Benefits, Tips, and Services
Beneath the allure of real estate lies the backbone of any successful agent's business: Accounting
While accounting for real estate agents is critical for sustainability and growth in the real estate industry, it’s not always glamorous. Accounting for real estate agents is, however, the mechanism responsible for monitoring the financial health of the business, guiding agents through key decisions, and identifying potential pitfalls. Without a solid understanding of accounting, an agent risks mismanaging their finances, missing out on valuable deductions, and ultimately, struggling to keep their business afloat.
Key Takeaways:
- Accounting is an essential part of growing your business. Going beyond bookkeeping provides important insights into your financial health.
- Real estate accounting is unique with its own best practices. We can help you to meet your financial goals, comply with regulations, and have an easier tax season
- Too many agents mix business and personal expenses. That’s problematic for a lot of reasons, like confusion and bad tax reporting.
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The Importance of Accounting for Real Estate Agents
Real estate accounting might seem intimidating, especially when showing homes is more comfortable than crunching numbers. However, ignoring this crucial aspect of the business can lead to serious financial missteps. Here’s why accounting should be a priority for every real estate professional.
Understanding the financial health of your real estate business
It’s easy to assume that cash flow boils down to closed deals. After all, a closed deal directly translates into a commission. However, equating closed deals with financial success creates false perceptions of a business’s financial health.
Cash flow refers to all of the money coming into and going out of the business, and it’s a critical element to understand and monitor.
Negative cash flow – when more money is going out than coming in – can occur even when deals close regularly. For instance, investing heavily in marketing, paying high office overhead, and dealing with slow commission payouts all
drain cash resources, offsetting even significant revenue.
By understanding cash flow, an agent can identify potential issues before they become significant problems. With a firm grasp of cash flow, agents can spot trends, identify areas to cut costs, and ensure there is enough capital to keep the business running smoothly.
Real Estate Accounting-Real Estate Industry Benefits, Tips, & Services
Real estate professionals face unique tax situations. Between deductions, capital gains taxes, self-employment taxes, and more, there’s a lot to navigate. Misunderstanding or overlooking these issues can result in overpaying taxes or even legal trouble with the IRS.
Our knowledgeable real estate accounting experts help keep track of potential deductions, like mileage, home office expenses, and marketing costs, ensuring agents don’t pay more tax than necessary. We can also help plan for taxes, so there are no surprises at the end of the year.
Moreover, our understanding of the tax implications of various real estate deals – such as flips, rentals, and wholesale deals – can help an agent choose the most tax-efficient strategies for their business.
Why Outsource Real Estate Accounting
If you’re like many investors, you know keeping clean and up-to-date financial records is key to making good financial decisions, minimizing your tax liability, and growing your wealth.
- Do you have the funds to put a down payment on the next property?
- Are one or more of your properties underperforming?
- How much tax will you owe?
All these questions can be answered when you have a good accounting system that is updated regularly. Without one, you’re making educated guesses (at best).
After helping over 300 real estate investors and business owners, J&K Associates launched outsourced real estate accounting services. Hire us to take over core accounting functions, so you can get back to growing your business.
Saving time & money
Our Outsourced Real Estate Accounting Service starts with understanding where you are, and then building a strategy and framework to meet the needs of your business and plans for growth.
Accounting Service for the Real Estate Market
The real estate industry is not a one-size-fits-all approach. There are many unique tax benefits available to the real estate industry. Every company faces a unique set of market forces and individual factors that can influence or interrupt financial performance. Here at J&K Associates, we take the time to get to know you, your business, and your goals. We focus on proactively managing your cash flow and navigating tax laws and reporting regulations.
We have years of experience working alongside real estate developers, owners, property managers, partnerships, and investors through a wide variety of real estate transactions. Our team takes a hands-on approach, being readily available to bring you practical advice and honesty. We are focused on building long-term success, helping you minimize your tax bill, and taking advantage of the many deductions you will need in the ever-changing market.
Real Estate Accounting Services in CO, WY
Audit and Assurance
Audit and Assurance
Audit and Assurance
Do you need to present financial statements to lenders, stakeholders, or investors? J&K Associates offers audit and assurance services to help provide a detailed analysis of your real estate company’s financial standing. Having a professional accounting firm handle your audits works in your favor when you want to increase your capital. Enlist our experts for high-quality auditing and assurance services.
Bookkeeping
Audit and Assurance
Audit and Assurance
With any business, it is essential to monitor every transaction. Real estate accounting specialists have to make important financial decisions, and they can only do this with the correct information. Our real estate bookkeepers will create detailed financial reports to streamline your decision-making processes.
Bookkeeping involves more than monitoring transactions. Our bookkeeping services include paying stakeholders, improving financial security and overseeing salaries and billing. Outsource your bookkeeping to us to experience the immediate and long-term benefits.
Tax Preparation
Audit and Assurance
Tax Preparation
No matter what industry you’re in, tax season is stressful. However, it becomes even more complicated for the real estate sector because of all the specific tax benefits. Every company has a unique tax situation, and our real estate tax accountants pay careful attention to these circumstances, ensuring you receive a personalized solution.
We offer advanced tax preparation to minimize your tax payments and maximize your deductions. Our experts go above and beyond to account for every expense and income source.
Reporting Requirements
Reporting requirements stem from the federal and state government levels, lender requirements, and the ownership team’s internal requirements. Some examples include:
- Annual tax returns for the property to the federal government
- Monthly sales tax reporting to the state governments, and
- Quarterly financials sent to the lenders
In addition to quarterly financials, some lenders reserve funds for items like real estate taxes, insurance, and tenant improvement packages. To access these funds when needed, it is important for the accounting team to send proper documentation to the lenders and request the funds be used to pay those items before the due date.
While this is not an exhaustive list of all functions that property accountants take care of, it’s a good starting point for investors to get a sense of what goes on behind the scenes and what to keep an eye out for when investing in real estate. As the industry continues to evolve, staying abreast of accounting standards and industry trends is key.
We always recommend working with an experienced team that can help you navigate the nuances of real estate accounting. For more information and to explore our services further, feel free to reach out to us with any questions.
Monthly Financials and Annual Reporting Tasks
Communicating financial information to ownership teams involves assembling a comprehensive monthly financial package.
At J&K Associates, we utilize our portal to share this information, ensuring our investors are well-informed. This reporting package includes
- Balance Sheets
- Profit and Loss Statements
- Accounts Receivable statements
- Bank Reconciliations
- Rent Rolls
- Accounts Payable reports
- Management Fee reconciliation reports.
These reports provide a holistic view of assets, liabilities, income, expenses, tenant payment statuses, and management fees.
Real Estate Accounting Fundamentals
Real estate accounting plays a crucial role in the financial management of investment properties. Whether you’re engaged in property management or are an investor seeking insights into the intricacies of real estate accounting, it’s important to be aware of several unique aspects. From monitoring tenant leases and expenses to ensuring accurate reporting for monthly and annual taxes, this information is essential for evaluating the investment’s performance and optimizing returns to the fullest extent
Lease Types
Since real estate accounting revolves around various lease types, each requires distinct accounting treatments. Unlike traditional accounting, real estate accounting involves the meticulous recognition of lease terms, such as operating leases and finance leases. The new lease accounting standards, such as ASC 842, have brought significant changes to lease accounting, impacting how leases are recognized and disclosed on financial statements.
Rent Revenue
The timing of recognizing rental income is critical. Lease payments may vary, with some agreements incorporating variable rents or lease incentives. Real estate accountants must navigate these intricacies, ensuring accurate revenue recognition and compliance with real estate accounting standards.
Tenant Leases
In the realm of real estate, tenant leases take center stage in the accounting process, given that all income stems from this.
When entering into a new lease contract with a tenant, there are various elements to be aware of, including:
- Concessions being provided by the leasing team such as free rent or tenant improvement packages
- Monthly rent amounts and any annual rent increases
- Security Deposit amounts to be held separately, not reported as rent income and
- Common Area Maintenance (CAM) reimbursements from the tenant to the landlord
This covers expenses like property taxes, HOA dues, and general repair costs, calculated based on each tenant’s pro-rata share annually.
Frequently Asked Questions
Please reach us at katy@jkcontractinggroup.com if you cannot find an answer to your question.
This accounting plays a crucial role in property valuation by providing accurate and comprehensive financial data. It records income, expenses, and capital improvements related to the property, enabling owners to assess its actual financial performance. This data is essential for valuation experts who rely on financial statements and historical records to determine the property's fair market value. Accurate accounting also helps investors make informed decisions about property acquisitions, sales, and financing. Furthermore, this accounting ensures that the valuation process is based on reliable financial information and adheres to the accounting standards and regulations.
Common challenges in this accounting include navigating complex lease agreements and ensuring compliance with evolving accounting standards. Moreover, complex procedures include accurately valuing properties, optimizing tax strategies while complying with tax regulations and dealing with property impairment assessments. Additionally, managing diverse property portfolios, tracking changes in fair value, and addressing property management issues can be demanding.
Commercial estate accounting involves more complex lease agreements, substantial property expenses, and larger-scale properties that require complicated accounting practices. However, residential estate accounting is more uncomplicated and focuses on individual or small-scale properties with straightforward rental income and expenses. Residential properties involve shorter lease terms, while commercial leases are usually long-term.
Offloading your accounting needs to an experienced professional offers several advantages, including:
- Saves time and money
- No need to hire an internal team
- Get access to the industry’s best practices
- Receive sound financial advice from trusted professionals
Our monthly accounting services are ideal for individuals or businesses that are in the beginning stages, already established, or in the growth phase. We help all sizes!
Expert Guidance: If you're seeking assistance in making informed decisions to expand and enhance your business, our services can provide valuable insights
and guidance.
Real estate expertise: Our team consists of real estate experts who can effectively transfer contextual knowledge to our in-house tax preparation and strategy teams.
This ensures that your accounting processes align with the unique requirements of the real estate industry.
By outsourcing your real estate accounting needs to us, you'll redirect your efforts and resources toward the higher-value aspects of your business instead of investing time and resources in training and managing in-house accounting staff.
You'll also gain access to a team of professionals who can help drive your business forward and provide the support needed to make strategic financial decisions.
Both bill pay and payroll services are optional add-ons for our Controller and CFO services.
If you need help with bill pay, we can set up your system and provide training, and ongoing assistance to your team, ensuring that your bills are paid accurately and on time.
Similarly, if you need support with payroll processing, we can provide set-up, training, and ongoing assistance to your team, ensuring that your employees are paid correctly and that all tax and regulatory requirements are met.
These additional services can be customized based on your specific needs and can be included in your overall package.
For our Controller package, your financials will be ready by the 20th of the following month we are reconciling. This means that if we are reconciling your accounts for January, your financials will be ready by February 20th.
If you opt for our CFO package, your financials will be ready even earlier, by the
15th of the following month. So, using the same example, if we are reconciling your accounts for the month of January, your financials will be ready by February 15th.
It's important to note that the timely delivery of your financials depends on various factors, including the cooperation of property management and other third parties. We rely on receiving the necessary information from these sources by the 10th of each month to ensure we can process and prepare your financials on time. If there are delays in receiving the required documents, it may result in a delay in the delivery of your financial statements.
Most outsourced bookkeeping service providers are generalists and focus on many different businesses and often lack real estate-specific expertise.
At J&K, 75% of our clients are real estate investors or business owners and we’ve developed real estate-specific expertise that allows us to provide tailored solutions to our clients in ways most other providers can’t.
Also, because we focus on real estate, this also allows us to not only help our clients with expert real estate bookkeeping and accounting services but also provide unique financial and operational insights.