By Beau Thoutt
Whenever tax season rolls around—bringing with it all those dreaded forms and reports—many landlords enlist the help of a real estate tax accountant. However, if you’re interested in financial guidance, investment advice, or suggestions on structuring your business, you may want to hire a CPA instead.
A CPA, or certified public accountant, can take on various responsibilities depending on the situation. For example, a CPA might help you minimize your tax liability or restructure your real estate business accounting to maximize your investments.
While tools like TurboTenant or rental accounting software can assist with some of these tasks, hiring a CPA offers certain advantages for landlords who need a broader range of services.
To help you decide whether or not it makes sense to hire a real estate CPA, we’ve put together a guide that covers the basics of what CPAs do, the key benefits of working with them, and how to find the right fit according to your portfolio.
Read on to learn everything you need to know about working with CPAs for real estate.
What is a real estate CPA?
CPAs assist landlords with the many financial and accounting duties of managing rental properties. Depending on the landlord’s needs, a CPA might include handling taxes, advising on purchases, or resolving accounting issues.
Qualified real estate CPAs are highly valuable to landlords and must complete rigorous state-mandated education to become fully licensed. They must also take ongoing courses to stay current on tax codes and other legal changes that affect rental property ownership.
In short, real estate CPAs can take on a wide range of responsibilities. They can represent landlords and property investors before the IRS in the event of an audit. Many also advise on financial decisions beyond tax season, such as investment planning, capital gains strategies, rent collection, and more.
Differences between CPAs and real estate tax accountants
Though the layman often views real estate CPAs and property tax accountants as interchangeable, the two roles differ in key ways.
While property accountants typically receive some form of certification, CPAs hold higher professional designations. As such, they must complete continuing education to stay current on tax laws and code changes. And while most real estate tax accountants only work during tax season, CPAs typically work year-round and provide a wider range of services.
Real estate tax accountants generally have a more limited role in supporting landlords. As a result, many landlords choose to hire a CPA for more in-depth guidance and ongoing support throughout the year.
The Benefits of Hiring a Real Estate CPA
Landlords can use TurboTenant’s free property management software to assist with accounting, lease administration, and online rent collection. However, hiring a real estate CPA may benefit those who need more specialized, professional guidance in managing the financial side of their portfolio.
Tax Expertise
Because CPAs need to pursue continuing education, a real estate CPA will be well-versed in all relevant real estate tax laws. This knowledge helps landlords stay on top of deadlines and other important details, ensuring compliance with changing codes and regulations.
Efficient Business Structuring
CPAs do more than manage taxes. They can help landlords structure their businesses more efficiently, offering insight into whether operating as an LLC, an S corporation, or a sole proprietorship is better. These decisions can lead to significant long-term savings.
Downsizing Tax Liability
Though operating a rental property carries significant tax benefits, you need to know how to use them to your advantage to maximize savings during tax season. CPAs can help reduce your tax liability and navigate complex processes like 1031 exchanges, maximizing your deductions, and capitalizing on other tax advantages to lower what you owe.
Maximize Investment Returns
Real estate ownership of any kind is an investment, and a CPA can help you get the most out of that investment, offering advice to help you maximize profits from your rental property. Some often include guidance on expanding their clients’ rental portfolio, while other investment property tax accountants provide insights on market trends and creative financing options.
Professional Networking Opportunities
Any CPA worth their salt typically works with a broad network of other professionals in the real estate industry, such as real estate agents and attorneys. Hiring a real estate CPA makes it easier to connect with other trusted, qualified experts when you need help with another part of managing your rental portfolio.
Long-term Financial Guidance
As helpful as real estate tax accountants may be, CPAs typically assist landlords with many aspects of managing their rental portfolio beyond taxes. So, if changes or unexpected issues arise, a CPA can help the landlord navigate anything that might impact their portfolio or real estate business.
Detailed Record Keeping
As a landlord, you always have a lot on your mind, and the last thing you want to do is spend your free time juggling receipts and records.
As professional landlord tax accountants, CPAs help clients maintain thorough, detailed records of all financial aspects of their business, which saves landlords valuable time and provides peace of mind if unexpected issues arise, such as audits.
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Do you need to hire a real estate CPA?
As valuable as working with a real estate CPA can be, it’s natural to wonder whether you truly need one. After all, CPAs don’t offer their services for free, and hiring a property investment accountant can be costly.
You can use TurboTenant’s easy-to-navigate rental property accounting software to handle some of the tasks a CPA would perform.
However, landlords who want the more human aspects of working with a CPA, such as personalized investment advice or qualified IRS representation, may still prefer to hire an accountant for property owners.
CPAs can be especially helpful for landlords dealing with complex tax or business situations, such as purchasing real estate through a trust or buying property in a foreign country. Landlords who find accounting overwhelming may also want to work with a CPA to reduce the stress of record-keeping and avoid potential audits.
Ultimately, you’ll need to decide whether hiring a real estate CPA is worthwhile or using real estate accounting software like TurboTenant or REI Hub can get the job done.
How to Hire a Real Estate CPA
Ideally, you know someone who already works with a CPA and can rely on word-of-mouth referrals to find the right fit.
If you’re starting from scratch, a simple Google search should be enough to get going. Just be sure to look for reviews and other references that speak to a CPA’s expertise.
Beyond reviewing a CPA’s track record, you’ll need to consider several other key factors during your search. Choosing the right CPA depends largely on what you hope to gain from the relationship, so keep these concerns in mind as you decide.
Billing and Fees
First and foremost, you’ll need to make sure the CPA you choose fits within your budget. When speaking with a potential CPA, ask how much they charge, when, and if there are any bonuses or additional fees that may apply in certain situations.
Some CPAs charge flat rates, others bill by the hour, and some add fees for more complex services. Understanding all aspects of their pricing structure is crucial before moving forward.
Licensing and Specializations
As mentioned, CPAs must complete state-mandated education and stay current on continuing education requirements to remain licensed. However, some CPAs hold additional licenses or certifications, which can be helpful for landlords who need more specialized services.
For example, a CPA might also have a real estate license, which is useful for those seeking property investment advice. Some CPAs may focus on residential real estate, while others specialize in commercial properties. Understanding these specializations can make a big difference in finding the right CPA for your needs.
Tax Planning Services
When hiring a CPA, landlords should determine whether their services include tax planning and tax return preparation. Though the two may sound similar, tax planning is a longer-term process that takes place throughout the year and often requires more involvement from the landlord and the CPA.
Landlords should also ask who at the CPA’s office will be responsible for filing the taxes. CPAs don’t always handle the entire process themselves, so it’s essential to confirm that the person preparing and submitting the return is competent, experienced, and properly supervised.
Approach to Investing
Like all investors, some CPAs take an aggressive approach to growing their clients’ real estate businesses, while others are more risk-averse. This is an important factor to consider when choosing a CPA, as you’ll want to work with someone whose values and investment goals align with yours.
CPA Agreement
When you decide to work with a CPA, you’ll need to create a CPA agreement, ensuring that both parties understand their roles and responsibilities. Doing so clarifies all key details of the relationship between the CPA and the landlord, prevents misunderstandings, and ensures expectations are clearly defined on both sides.
Real Estate Software: Your New Tax Accountant?
Regarding the financial side of managing rental properties, working with a real estate tax accountant can be helpful. However, hiring a CPA may offer even greater benefits for landlords who want to stay current on property tax laws, receive year-round financial guidance, and maximize their investment portfolio.
To streamline the process of managing your rental properties, consider using TurboTenant’s free landlord software. The platform includes tools like lease agreement management and rent collection, helping you operate your rentals with less hassle.
Sign up for a free account to learn more.
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By Scot Aubrey
When you hear the word “rot” in relation to real estate, all sorts of bad visions and horror stories immediately come to mind.
In fact, that word often translates in our minds to money, as in, how much is it going to cost me to repair whatever is rotting. Allow me to introduce a new way of looking at this word in a much better way, one that when done right, can actually add to your bank account rather than being a drain on it.
While every investor is intimately familiar with ROI, return on investment, which carries a great weight when evaluating a property, many may disregard an equally crucial factor, and that is ROT, or return on time.
For purposes of this article, we will examine return on time to help you become an even more successful and satisfied investor.
Gut Reaction
If you will, please take the next thirty seconds and stop reading.
I want you to think about your portfolio by specific address if you can and think of or say aloud the address of one of your investments.
How do you feel when you hear that address? Many of you probably have that “perfect” property that houses great tenants who pay on time and even manage some of the most common maintenance items out of their own pocket. This property brings a smile to your face and good feelings, knowing that it is an asset that provides a great return on both your time and your investment.
Others of you had a physical, maybe even violent reaction when you thought of a property that is less than your ideal. Tenants that pay late consistently, that call you for even the simplest repairs, which cause friction with their neighbors. You know the one because it takes up an inordinate amount of your time and more than once you have considered offloading it, and its attendant problems, out of your portfolio and your life.
The Analysis
While return on time is an often-overlooked real estate investor metric, it needs to play a critical role in your decision-making, particularly when time is limited.
After all, time is money and every second you spend managing a property with a low ROT can feel like a total waste because you are sacrificing time that could be spent with family, on a hobby, vacationing or finding your next great property.
While there is no universal formula for ROT, you can begin by evaluating the benefits, satisfaction, or personal wealth derived from the time spent on a specific property. Time is finite, and therefore, optimizing how time is spent is just as important as financial investments.
ROT focuses on the time and the intangible returns that come from using time effectively. ROT is based on the principle that time, like money, is a limited resource. Time cannot be bought back once spent; therefore, ROT considers the opportunity cost of how time is spent.
Is the time spent working on a project worth the long-term value or the personal satisfaction gained from it? That is the key question in any analysis you perform with ROT in mind.
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A Balanced Approach
Decision making focused solely on ROT could result in the neglect of profitable opportunities if that is the only metric considered.
Every investment you approach has to include a thorough look at the financial AND time aspects required to create a positive return.
For example, let’s say you found an underpriced property in a great neighborhood, but the home needs an extensive remodel to make it appealing to the majority of the market.
You also found a home in the same neighborhood that is turn-key ready but costs 75% more than the fixer upper. ROI and ROT would be evaluated when deciding between these two projects—one that offers a higher ROI but requires more time, and another that is less lucrative but can be completed more quickly. Only you can determine how much each factor weighs into your decision-making process, but both must be a major component of your final determination.
Conclusion
While both ROI and ROT are critical for evaluating decision-making in both personal and professional contexts, they serve different purposes. A lot of other factors will influence your investment path as well.
Is this a hobby or profession? What is your age and how many years left do you have to grow your portfolio? What kind of financial backing do you have if things go sideways?
These questions, and so many others can help you determine how and when to use ROT as a measurement in your present and future investing. And if you are still feeling heartburn from the earlier exercise where you thought about your portfolio, be bold enough to cut out the rot and move on to an investment that brings you both joy and financial freedom.
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