Making the most of your real estate investments is about more than just a healthy Cash on Cash Return. It requires smart and decisive financial management all along the way.
But with the accounting nuances and tax complexities of real estate investing, making smart decisions requires knowledge and expertise beyond that of the average passive or even active real estate investor.
For this reason, it’s wise to hire an accountant early on in your real estate investing journey, and more specifically, one with proven knowledge and experience in real estate investing.
Here are 5 reasons to have a real estate savvy accountant on your team:
1. Professional Knowledge & Expertise
If you’re an accountant or similar financial professional, then you can probably DIY your real estate finances and do a great job.
However, for most of us whose goal is to be a real estate investor and not an accounting expert, outsourcing such expertise is generally a better way to fill the knowledge gaps and strengthen our overall performance.
An experienced accountant can help you setup procedures for regular bookkeeping and financial management, as well as understanding and making key financial decisions that could impact your overall income, risk, and taxes.
2. Tax Strategies
We all know that one of the greatest benefits of real estate investing is the tax strategies. However, there is more to realizing these benefits than just avoiding self-employment tax and claiming depreciation.
An experienced accountant can help you navigate issues such as business structuring, passive activity limitations, long-term and short-term capital gains, 1031 exchanges, recapturing depreciation, and many others.
Smart real estate investors know this and enlist the expertise of savvy accountants to help plan and manage the best tax strategy for their situation throughout the entire year.
3. Combining Multiple Sources & Types of Income
For many real estate investors, real estate is only one source of their total income. They may also have full-time W-2 jobs, own other businesses, receive Social Security or retirement income, or have other types of investments such as stocks or limited partnerships.
In these cases, the income from real estate investments is only one piece of the investor’s complete financial and tax puzzle. An accountant can fit all the pieces together in a way that can help maximize the investor’s income and net worth, while strategically minimizing the tax burden.
4. What if You’re Audited?
I know, it’s a scary thought. No one wants to go through an IRS audit.
The good news is that if you already have a great accountant by your side, then you should have no reason to worry. An experienced accountant should be keeping you and your tax records on the straight and narrow.
However, the position you do not want to be in is that of trying to find and hire an accountant after you’ve already received that dreaded IRS letter. Now you’re rushing to find someone you hope is knowledgeable and that you can trust, and then handing over and trying to explain years of financial information to them. Not only is this triage-like situation mentally grueling, but it is likely to be more expensive than if you already had a working relationship with the accountant.
Think about it this way – a visit to the Emergency Room can be a lot more expensive than a visit to your primary care physician who already knows you and your medical history.
Real estate investing is a team sport and partners are a must. An accountant with experience working with real estate professionals and investors will have relationships with people who may be able to help you in your investing journey, including brokers, attorneys, lenders, contractors, and others.
In this regard, a real estate experienced accountant can aid in continually enhancing your network and relationship building.
A real estate investing savvy accountant can be an invaluable part of your team.
In addition to their financial knowledge and expertise, they can help with optimizing tax strategies, managing different streams of income, navigating audits, and growing your business network. Referrals from other real estate investors and professionals is a great place to find an experienced real estate savvy accountant.
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