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Best Real Estate Accounting Tips for Agents and Brokers

Editor’s Note: This post was originally published in November 2019 and has been revamped and updated for accuracy and comprehensiveness. 

As the owner of a new real estate business, you’re probably aware of the unique characteristics of your industry. You take a personal interest in the real estate market, and you are excited to do great work for your clients, whether buying or selling pieces of property. 

But here’s the thing—running a real estate business is about more than making great deals. Accounting plays a major role in staying organized, managing taxes, and making smart decisions in any business. 

Why accounting is important for real estate businesses

Setting up your real estate accounting system the right way will enable you to minimize the labor and stress involved in large-value transactions, extreme income fluctuations, employee pay formulas, and government regulations.

These tips are for you if your business is:

  • Real estate broker or agent
  • Property management
  • Building construction
  • Residential sales
  • Real estate investment management

Another reason to keep accurate financial records is that you will probably have to show them to interested parties at some point. These entities include:

  • Lenders
  • Shareholders
  • Creditors
  • Government bodies (e.g., the IRS)

There are many motivations to keep accurate books. And, contrary to popular belief, doing so does not have to be a major headache or hassle. With a service like Xendoo, you can outsource your bookkeeping and tax work to focus on what you do best. For more information, check out this post on how to choose the right software to simplify your real estate accounting. 

Two men go over real esate regulations at their desk.

Learn the Regulations

Did you know that it is not just real estate transactions that local and state commissions oversee? These bodies also oversee the financial management of a real estate business, so playing by the rules is essential. Therefore, it’s a good idea to familiarize yourself with their requirements before making any decisions about your bookkeeping system. If the language is unclear, consult a professional accountant who specializes in real estate. It’s far better to spend extra time setting up your accounting procedures properly at the start than trying to untangle a mess when you run into trouble later on.

Choose Who or What Will Do Your Real Estate Accounting

For real estate professionals, the most viable options are:

  • Hire an accountant as a full-time employee
  • Outsource accounting services
  • Accounting software used by management or other designated employees

Hiring an accountant to work in-house is undoubtedly a powerful approach, but it will be costly and likely beyond the scope of many real estate businesses. On the other end of the spectrum, acquiring accounting software to manage the books yourself or amongst your team might be difficult if no one has proper accounting training or the time to dedicate to ensure your books are up to date. Even minor accounting mistakes can add up to bigger ones down the road.

It’s the middle ground – outsourcing accounting tasks to a third party like Xendoo – that will make the most sense for many real estate agents and brokers. This option keeps the costs down while still freeing up your time and utilizing experts to make sure the work is done properly. 

Select Your Accounting Method

You have two choices: cash basis or accrual. Once you make a choice, you must stick with it, unless you submit a change request to the IRS. (Your first tax return shows the IRS which one you chose in the beginning — you don’t have to submit any forms for that.)

Cash basis accounting is often preferred by small businesses because it’s easier to maintain, and it tells you how much money you actually have in the bank on any given day. Accrual accounting is usually the choice of larger companies because it portrays a more accurate portrait of your real estate business’s financial performance. Accrual accounting also allows you to better your long-term plan, which is helpful if you are thinking about expanding your business.

A real estate agent looks over his accounting charts on a tablet.

Create a Chart of Accounts

This complete index of your company’s transactions is essential for knowing how you stand. It will save you many hours of work when you need to measure performance, generate a report, locate past transactions, or prepare tax returns.

The chart of accounts is organized into categories for easy sorting and retrieval. These categories can be anything you need. Under Assets, they might include Cash, Accounts Receivable, and Vehicles. Under Liabilities, you might have sub-accounts such as Accounts Payable, Loans, and Payroll.

Keep Business and Personal Transactions Separate

Don’t fall into the bad habit of pulling out your business credit card or checkbook to pay personal expenses — or vice versa. Without fail, it will cause more problems than it solves, including inaccurate books, tax mistakes, and cash flow issues. 

Real estate accounting shouldn’t be complicated, and this is one of the golden rules that can keep things simple—don’t make personal purchases with business accounts. Opening a separate bank account and a credit card strictly for your business will also make you look more professional to your customers, creditors, and investors.

Fool-Proof Accounts Receivable

Collecting payments that are owed is one of the biggest headaches for small businesses. Prevent delayed and missed payments with an automated invoicing system that:

  • Sends invoices promptly
  • Includes all the necessary information
  • Offers several convenient ways to pay
  • Tracks and contacts delinquent payers

With an automated system in place, you’ll save time and avoid missing out on revenue that slipped through the cracks when you were too busy to track it down. 

Reconcile Your Bank Account Every Month

Reconciling your bank account means checking that the transactions listed on the bank statement match what you have in your books. This process will identify any discrepancies so you can figure out why they happened and make a plan for avoiding those issues in the future.

Usually, it’s something simple like a financial transaction that’s recorded in your books, but the bank hasn’t processed it yet. However, it could be a more severe problem such as data entry error, misunderstandings of using the bookkeeping system, or even theft.

A broker goes over his taxes for his real estate business.

Figure Out Worker Pay and Taxes

Your business may pay one or more of these types of compensation:

  • Salary employee
  • Commission employee
  • Salary plus commission employee
  • Independent sub-contractor

Ideally, you’ll have payroll software that can calculate them all, as well as track them for income tax withholding. Fees to independent contractors may be handled separately by accounts payable since these workers are not, by definition, your employees.

It’s not only the fees that you have to be aware of but also the proper paperwork for each type of employee. You’ll need to learn which tax forms to collect from employees (W-2) and contractors (1099) and how to report their income to the IRS.

At Xendoo, we can also help with payroll processing as an add-on service to our real estate accounting. You won’t have to worry about issuing and filing your W-2s or1099s, which means one less thing keeping you from focusing on your business. 

Make Professional Life a Little Easier

If all this seems overwhelming, consider outsourcing to financial professionals. Xendoo specializes in small business accounting. We’ll relieve you of all that work and worry with services that range from real-time bookkeeping to timely financial reports to preparing your tax return. 

 

See for yourself with a one-month free trial.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

How to Choose the Right Software to Simplify Your Real Estate Accounting

Editor’s Note: This post was originally published in June 2018 and has been revamped and updated for accuracy and comprehensiveness. 

Let’s face it, bookkeeping for a business in the real estate industry is complicated. That holds true whether your niche is sales, management, construction, or tax and legal services. Unlike some other types of business, you must deal with variables like fluctuating income, expenses, payroll, and property values, not to mention a heavy load of government regulations.

All these factors must be accounted for completely and accurately to control profit margins, satisfy clients, and be prepared for tax filing. It’s a big hassle if you’re doing it the old-fashioned way, creating custom spreadsheets and writing down transactions in a ledger. However, the right real estate accounting software will do many accounting tasks for you automatically, leaving you free to focus on your core business.

Real estate business payroll

Processing payroll is a core function for any business. Using accounting software that takes some of the hassles out of completing payroll each period can save you time and keep your records accurate year after year. 

Your business may have one or more of these types of workers:

• Commission

• Salary plus commission

• Salary

• Independent subcontractors

As it relates to real estate accounting specifically, choose software with a payroll feature capable of calculating commissions and tracking those amounts for income tax withholding. Similarly, you should categorize payments made to independent contractors, as those are typically not subject to withholding.

A person works on their laptop.

Real-time remote work tracking

Whether your people are out on a building site or showing homes to prospective buyers, a cloud-based management app will give them access to the office. At the same time, the office is tracking their activities. Info on everything from materials used to schedule changes can be updated and shared with everyone in real-time.

A system that integrates all departments saves time and money for workers and managers. It also means that data from the field is incorporated into the books automatically, eliminating duplicated effort and potential errors for the accountant. The inherent challenge with real estate accounting is the many moving parts involved—everything doesn’t happen in the same place. Leveraging technology to automatically collect all of this information and incorporate it into a bookkeeping system is sure to lead to better results. 

Breeze through tax time

The topic of taxes will come up again and again in the search for the right real estate accounting software—and for a good reason. Taxes aren’t only necessary because they are a legal requirement but also because they can represent such a significant expense. If your real estate business holds properties, for example, the property taxes alone can take a big chunk out of your bottom line. 

You can’t get away from paying taxes, of course, but you can use good accounting software and a tax filing service like Xendoo to make sure you don’t pay more than your share. 

A real estate records her numbers for the week on a laptop,

Streamline operational expense recording

One of the best real estate accounting tips you can receive is to enter all of your transactions each day. Suppose you wait until a week before your tax return is due to get your books updated. In that case, you’ll be facing a major headache and the likelihood that there will be errors beyond tax filing. Keeping your figures up to date will also reveal when and where you’re losing money. This makes it easier to make sound decisions and avoid spending too much time on a losing endeavor. 

Consider accounting software that integrates with your bank, recording every transaction automatically and saving you a great deal of time and paperwork. Plus, you’ll be ready for an audit any day of the year. Many real estate professionals – and professionals in other industries – feel like they are constantly behind on accounting. The key to getting ahead of the game is not to spend more of your precious time on the task but rather to streamline it using the right real estate accounting software. 

Financial reports data access

Using cloud-based software allows you to see your financial reports or share data with your accountant anytime, anywhere. And with no need for in-house servers to store your data, you’ll mitigate the risk of losing your data and bring down IT expenses as well. If you are currently storing all of the financial data for your business on a single computer in your office, you are playing with fire in terms of data loss risk. Turning to the cloud leaves you with off-site storage that is backed up and secure. 

Two noteworthy options

Most real estate businesses won’t need to take their accounting software search beyond two of the market leaders—Xero and QuickBooks Online. Each of these options includes all of the features you are likely to need to keep the financial side of your business in order. And, as an added bonus when working with Xendoo, we can provide you with a discount on either one of these two excellent accounting platforms. 

Xendoo believes that cloud-based accounting is the right choice for any real estate business looking to increase growth while reducing inefficiencies. By automating bookkeeping chores, we eliminate the hassles, the mistakes, and more than half the costs of traditional accounting. Our real estate accounting service will leave your business ready at every moment to meet challenges and seize opportunities for success.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

A real estate agent holds out the key for his buyer's new home.

7 Tax Tips for Independent Realtors

Editor’s Note: This post was originally published in November 2016 and has been revamped and updated for accuracy and comprehensiveness. 

As a self-employed realtor, you face some unique challenges when tax season comes knocking at your door. Since you don’t have taxes withheld from a regular paycheck, it’s up to you to lessen your tax burden by identifying all of the deductible expenses you incur throughout the year. Without careful planning, the tax bill you face when April rolls around can be quite a shock.

But here’s the good news: there’s probably more you can deduct than you realize! By carefully assessing not only your properties but your business as a whole, you can hold onto more of your hard-earned cash at tax time. The following tax tips for real estate agents are a great place to start looking for valuable deductions.

7 Tax Tips for Real Estate Agents

 

A real estate agent drives his car to a client meeting.

#1 – Mileage & Auto Expenses

Realtors tend to spend a lot of time behind the wheel. The miles you rack up can include getting to appointments, taking clients to see new properties, and staging homes. Don’t also forget to include car maintenance like new tires, tune-ups, and even car washes! At tax preparation time, you will need to determine whether the standard or actual cost deduction will save you the most money.

#2 – Office Space

Whether you pay desk fees under another agent or work from a home office, the IRS allows you to deduct the cost (or a percentage of) your office space. Depending on your situation, this could be a rather significant expense over the course of a year, so you don’t want to miss out on this deduction. 

It’s important to note that you won’t be able to deduct both the desk fees you pay and the space you use at home for an office. Instead, you can only deduct one or the other – whichever is greater. Keep careful records of how much you spend on any office-related rent and purchases, so you have an accurate accounting of this component when it comes time to file.

#3 – Marketing

Business cards, website maintenance, mailers – any method you use to get your name out there is deductible as a business expense. Did you have a new logo designed? Maybe you purchased a mailing list? Those are included, too. 

Unfortunately, many agents simply fail to track these kinds of costs throughout the year. The money just goes out to various vendors and services, and a (digital) paper trail is not kept up. This can be an expensive mistake. Instead, by utilizing online bookkeeping for real estate agents, you can adequately record all marketing expenses along the way, saving them in one central location for use at tax time.

#4 – Supplies & Equipment

Think of all the tools you use to run your business: a nice camera to photograph properties, your computer, lockboxes, and staging decor. Did you buy a new vacuum to clean up that “fixer-upper” you were showing? Work-related cleaning supplies are also deductible! Once you start keeping careful track of everything you purchase, you might be surprised to find how many items fall into this category over the course of a year. 

A man reads a book to help imprve his real estate selling skills.

#5 – Licenses & Fees

As a real estate agent, you are all too familiar with the various fees you pay throughout the year. Fortunately, MLS, brokerage, and legal fees — to name just a few — are all deductible. You can even deduct professional membership fees — just remember that any portion of dues designated for lobbying or political advocacy is not deductible. And don’t forget about your state license renewal.

#6 – Meals & Entertainment

Do you take clients out for lunch after a morning of showing properties? Did you meet up with a prospective business partner for happy hour? Did you cater an open house? If you discussed business before, during, or after the meal, it could be deducted on your tax return. Using the right accounting software will make it much easier to track all of these types of casual expenses throughout the year. 

#7 – Professional Development

Staying at the top of the real estate market in your area means you’re always looking for ways to expand your learning and stay on top of industry trends. Professional development events, along with any trade events, can be deducted. Also, books you purchase or publications you subscribe to can be subtracted from your revenues.

Utilizing the services available from Xendoo can help make tracking all of your business expenses a whole lot easier, so you can spend more time selling and less time worrying about next April. Get started today!

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.

 

5 Benefits of Owning Your Small Business Property

Is it time to purchase the commercial property you’ve been leasing?  If you’re a small business owner who currently rents office or retail space, you could be in a position to benefit from becoming an owner.

Of course, the decision to own or rent will depend on a number of factors unique to your business, such as your location, revenue, and business experience.

But there are general positives for your business that come from purchasing commercial real estate.  Here are five of the top benefits you could expect to enjoy should you transition from renter to owner.

1. The ability to build equity in your property

Perhaps the greatest drawback to leasing a commercial property is that every monthly payment simply ends up in the landlord’s pocket.  However, purchasing that space gives you the ability to immediately start building equity in the property.

If that property increases in value over time, you can cash in by selling or leasing the building.

Those who secure a loan to help purchase commercial real estate also have the option to tap into their equity by executing a cash-out refinance.  By refinancing and taking out a larger loan, a borrower can convert their existing equity into cash.  The amount of the original loan is then repaid to the lender while the rest can be used for business improvements or future investments.

2. The creation of additional revenue streams

If you purchase office, retail, or warehouse property that your business can’t occupy completely, you have the opportunity to establish a new revenue stream by leasing the additional space to tenants.

Rental income can play an important role in bolstering your revenue during difficult periods for your business.  This can provide a real sense of comfort for those working to get their small business off the ground. 

It must be noted that taking on tenants requires project management capabilities you may not currently possess.  If you do plan on leasing a portion of your commercial property, consider investing in property management training or hiring a professional to assist you.

3. Tax benefits

Owning commercial real estate puts you in a position to enjoy tax benefits that could significantly impact your bottom line.

As an owner, you can take advantage of depreciation deductions and mortgage interest write-offs that can offset the cost of your original purchase and generally ease the tax burden you may currently feel each year. 

Be sure to consult a tax professional to learn more about the benefits (and potential drawbacks) of owning commercial real estate.

4. Freedom and control

Renting a commercial property leaves you with few options when it comes to renovations or additions.  This can be a real source of frustration for those who enjoy being in control of all aspects of their small business.

Once you own your office or storefront, you have the freedom to truly make it your own.  If you purchase your restaurant’s building, for example, you could finally create more room for tables or redesign the kitchen.  Getting these types of changes approved by a landlord can take ages – by the time you’re able to make a necessary change, your business has already suffered irreparable damage.

With control also comes consistency.  Owners of commercial real estate never have to worry about a landlord’s rent hikes or rule changes that can stunt a business’ growth. 

5. Appreciating value

Commercial real estate investments have a history of strong appreciation.  Besides the general demand increases that come from scarcity in an active market, commercial real estate can appreciate in value based on their ability to generate income.

This means that as the owner of a commercial property, you have a hand in increasing the asset’s value.  By renovating the building or adding rentable space, you can effectively add value to your original investment.  This is one of the main advantages a hard asset like commercial real estate has overstock or bond investments.

Owning commercial property is not without its disadvantages as well.  The purchase price itself may be staggering for those just starting their business.  Additional challenges having to do with building repairs or tenant vacancies can be debilitating for business owners who don’t have the resources to manage them.  

But you may find that the benefits of finally owning your own office or retail storefront far outweigh the potential difficulties.  If you value day-to-day control and have a long-term vision includes both your business and the building it occupies, ownership may be your best bet for success.

If you’re interested in purchasing a commercial property, one of your first steps should be to determine the financing solution that makes the best sense for your business.  Commercial Direct, a division of Silver Hill Funding, LLC, specializes in providing flexible commercial mortgages to small business owners – even those with tax documentation issues that make it difficult to work with traditional banks.  

Learn more about how Commercial Direct can help you own your commercial property here.   

 

Author: Zack North

Zack North is the Director of Marketing for Commercial Direct.  As a regular contributor to a number of top industry publications, Zack enjoys writing about topics that help investors and business owners approach commercial mortgage financing with confidence.

 

This post is intended to be used for informational purposes only and does not constitute as legal, business, or tax advice. Please consult your attorney, business advisor, or tax advisor with respect to matters referenced in our content. Xendoo assumes no liability for any actions taken in reliance upon the information contained herein.