Bookkeeping for Real Estate

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Whether you run a real estate agency or manage properties for clients, real estate accounting can be complex. But it doesn’t have to be that way. Re-Leased, a cloud-based property management software company shares some tips for making it easier.

Well-managed real estate accounting is vital

Working in real estate means dealing with large sums of money on a regular basis. That’s true whether you:

  • run a real estate agency employing commissioned salespeople
  • manage commercial or residential real estate for clients
  • handle the accounts of a housing association
  • run a building construction firm
  • manage an investment trust
  • provide residential sales and lettings services.

In all of these roles, well-managed real estate accounting can make all the difference. Mistakes could cost you (or your clients) a lot of money.

Re-Leased talks to us about how property management software can save time and ensure data is up-to-date.

Understanding the issues

The real estate industry forms a major part of the national and global economy. Accounting regulations are designed to:

  • make the most of real estate’s contribution to GDP
  • encourage wealth creation and distribution through investment
  • try to prevent a repeat of the mistakes leading up to the global financial crisis of 2007.

The regulations in force don’t always achieve these goals – but they are the rules that you must follow. In particular, some countries now have stricter rules about:

  • ownership transfer and identification
  • money laundering
  • valuing commercial and residential real estate
  • offsetting expenses
  • land, property and inheritance taxes
  • managing and accounting for clients funds.

Talk to an accountant

With all these regulations, it’s sensible to seek assistance if you’re new to real estate accounting. Before you even start your new business, talk to an accountant.

If possible, try to find an accounting firm that specializes in real estate accounting. There are many rules to bear in mind, and an accountant will help you follow them. They will also be able to:

  • structure your business in the most tax-efficient way
  • give you guidance on how to avoid unnecessary expenses
  • use online accounting software to share updates, reports and forecasts with you.

In short, the right accountant will save you more money than they cost you. So hire an accountant before you start trading.

Estimate the value of your real estate

In other types of business, stock has a clear and specific value. But in real estate, transactions are less frequent. One house or office block might remain in the same hands for years or even decades, so it can be hard to figure out what its value is today.

Most real estate valuations are based on estimates. Until a transaction takes place, the real value is unknown. So estimates of value are part of selling or managing real estate for clients. They are usually based on recent sales of similar real estate in the same area.

Accurate asset evaluation is essential for accounting purposes. Taxes and other charges are often based on value.

If you inaccurately value the real estate you manage or sell, you could be liable to prosecution. So follow valuation regulations carefully, and keep accurate records in your accounting software.

Paying your staff

Real estate businesses often hire staff based on commission, or a percentage of the rental income they manage. Some use a combination of a fixed salary plus commission.

For agencies in particular, it makes sense to offer salespeople commission for completed sales. This is a big incentive for them to work hard. However commissions can make payroll more difficult, since your staff payments will fluctuate.

You can make this simpler by using accounting software that has payroll features built-in. Completed transactions can be assigned to particular staff members, with commission calculated automatically.

Remember, commissions are subject to income tax. It’s important to keep track of the figures so you withhold the right amount of tax.

Work from anywhere with cloud-based software

If your staff work remotely or complete tasks while they’re out and about on a job, look at using online property management software for your real estate business. It will mean that your employees can work from anywhere, at any time, on any device – which is a real advantage in the property industry.

Make sure your business uses software applications that integrate with your property management software. When your software is streamlined and in sync, you’ll be more efficient and be able to offer superior service to your clients.

 

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