Investing In Real Estate – Building The Right Team #7: Bookkeeper

No one will ever care as much about your investment property as you do. But what exactly should you care about most as an investor? The short answer is: how much money you’re making! The funny thing is a lot of investors don’t actually know how well their investment property is performing. Don’t be one of those people! Today we are going to talk about the next member of your team, which will help you with this problem…your bookkeeper.

Do I really need a bookkeeper?

Technically, you don’t need one. You can do the bookkeeping yourself if you work with a simple spreadsheet or an accounting software such as quickbooks or simply accounting. Just make sure you keep detailed records and ensure you input all the income, expenses, etc, properly and allocate it to the right property. When you start out, it's often a good idea to start doing your own books so you can learn. As your portfolio grows, you will want to consider delegating the task to a bookkeeper.

What will my bookkeeper do for me?

A bookkeeper will input all income and expenses into whatever accounting software you use. They will keep neat records so when tax time rolls around, you have everything handy. They will also run regular reports (ie. monthly, quarterly) so you can track the performance of your investments.

What else should I know about bookkeeping?

The biggest aspect of bookkeeping is measuring performance. If things are going well and as good or better than expected then you want to keep up the good work to make sure things don’t slip. If things aren’t performing so well, it allows you to look at where the numbers are going wrong and make some changes (ie. increase rents, renovate, implement energy efficiency updates). And if after doing all you can, and after continuing to monitor the performance, it doesn’t turn around, maybe it wasn’t a good investment and its time to sell and move on.

How much will my bookkeeper cost?

As in the rest of the your team members the cost will vary, but bookkeeping is a highly automated process so the rates in your area should be pretty standardized. Either a per hour amount or a monthly fee is most common. Also make sure to check the work to make sure they are doing a good job with minimal errors and making it worthwhile for you.

The bottomline is that understanding your investment properties performance is very important and not a task to be taken lightly. Consider hiring a bookkeeper to make sure this is taken care of properly.

Do you do your own bookkeeping or outsource it for a bookkeeper?

Investing in Real Estate – Building The Right Team #4: Accountant

As the saying goes, “The only two certainties in life are death and taxes.” Continuing on in your journey of investing in real estate and building your team, you’ll need a good accountant to figure out the latter. Today we are going to talk about why you need a good accountant on your team and how they can help you succeed.

Why Do I Need An Accountant?

The main function of your accountant in relation to your real estate investing is to help figure out the taxable rental income attributable to your rental properties. They will help with filing your tax return, and provide advice relative to your situation and any tax planning that is necessary. All this would also apply to your employment income (if your employed) as this would all go on the same tax return.

How Will My Accountant Help?

Outside of the filing of tax returns, your accountant will help with general tax advice and planning.  Decisions an accountant can help with include:

• Can you expense or amortize a certain repair or renovation?
• How much depreciation expense should you take?
• When is a good time to sell based on tax consequences?

An accountant will also help should you ever get audited by CRA. Basically they will help you within existing tax laws to maximize your after tax rental income, which is really what investing is all about.

What Should I Look For In An Accountant?

As a real estate investor, it is a definite plus to deal with an accountant that has lots of experience with real estate investors. Ask for references from other investor colleagues. Having an accountant with a Chartered Accountant designation is also huge plus.

How Much Will My Accountant Cost?

This will vary depending on your tax situation and the accountant you use. Some charge a flat rate for a comprehensive tax return and some charge per hour. One way to lower your bill will be to have all your paperwork organized for tax time so your accountant isn’t drowning in paperwork. This can be done with bookkeeping software such as Simply Accounting or by hiring a bookkeeper to keep proper records of everything.

In the business of real estate investing, it’s not what you make, it’s what you keep. You also need to be aware of exactly how much your investment properties are making so you can make any necessary changes to ensure your success. Keep diligent records with the help of your accountant and your cheque book will be happy you did!

Investing in Real Estate – Building The Right Team

After doing some research on different investing ideas, you’ve decided that real estate investing is right for you. No matter how big or small you intend for this investment venture to be, its important to be ready, willing and able to handle everything that comes your way. But how do we do that? By building the proper team of professionals around you to set yourself up for success.

But what type of professionals do you need? We've put together a list of such professionals. Not every one of them is necessary for every investor, but the list is a starting point to make sure your bases are covered.

Realtor

Now this is a pretty obvious one ☺. They’ll be able to help you out with understanding values, demographics, rents, etc. Working with a realtor who either owns rentals themselves or does a good amount of income properties is a huge bonus.

Lawyer

A good real estate lawyer is invaluable. They will make sure your interests are protected in whatever deals your are considering. Good legal advice can be expensive but can save you money in the long run.

Mortgage Broker-Professional

Assuming you will be mortgaging your properties, a good mortgage broker-professional is essential in getting your deals financed. They can give you advice so you can continue to accumulate properties and get the best terms possible.

Accountant

A good accountant is also invaluable. Understanding the best way to hold the real estate, claim expenses, amortize costs, etc. can save you tax dollars. They also have your back should CRA ever audit you.

Property Manager

Don’t have time or the ability to handle your rentals yourself? Finding a good property manager is must-have. They can collect rents, leasing, handle tenant calls and be the general go between the property and the owner. Fees generally range from 5% of rent to one month’s rent per year and up.  Make sure you factor this cost into your budget if you're planning to have the property managed.

Contractor/HandyMan

Not very handy? Then you’ll need to contract out any renovations or general upkeep. When you find good people who don’t cost an arm and a leg, it is important to keep them around and happy. They will make your life much easier in this business.

Bookkeeper

A good bookkeeper can keep track of all your income and expenses related to each property and make sure everything runs smoothly. They can also run regular reports so you understand your profits and can uncover trends (like increasing utility costs), so they can be addressed.

General Maintenance – Grass, Snow, Cleaning

A list of maintenance contacts can go a long way in efficiently operating your property and keeping it safe and attractive to tenants. Be sure to also add these costs to your budget.

This is far from an exhaustive list, but it gives you a general idea about who you should have on your speed dial as a real estate investor. How has your experience been in creating your team?

Tax Time – It’s a Wrap

As we are in the last week of April, tax season is almost officially over.  Hopefully by now you’ve compiled all the info, met with your tax professional (if you don’t do it yourself) and are done filing your return. Some of you will be paying your balance owing, or if your lucky, getting back a nice tax refund.

To wrap up this series on Tax Time, we’d like to leave you with a few pieces of advice and insight as it relates to taxes and real estate and some of the crossovers between the two.

Stay Organized

As a landlord especially, you have lots of money coming in and going out every month. It’s important to stay on top of the paper trail so it can all be properly input at tax time. It’s much easier to do a little bit regularly, monthly or quarterly, than to leave a huge pile for tax season. The onus is on the filer to show receipts and invoices should CRA ever come calling. Not having your paperwork in order can cost you! We consider this time and money well spent to hire a bookkeeper to do this for you.

Look At Your Investments On An After Tax Basis

It’s great that you are investing in real estate and making money, but what do you really have to show for it come tax time? We often see people who know how much positive cash flow they have monthly or yearly, or what cap rate their property runs at, but hardly ever anyone who look at how their properties perform after taxes are accounted for. Tax season is a great time to review how your properties are actually performing. For example, say you have an investment property with a fixed rate mortgage at 3% and you’re in a marginal tax bracket of 40%. Because mortgage interest is tax deductible, your after tax interest cost is 1.8%. You have some extra cash and were thinking about making a prepayment on this mortgage. When you look at it in this after-tax light, you may consider there being a better use for the cash that can achieve a better rate of return after tax (highly likely in this case).

Give Thought to Tax Planning When Considering Real Estate Transactions

You might have a plan to dispose of a long held rental property in the near future.  The market might be hot right now and you’re thinking it’s a good time to sell. You also are a higher income earner but planning to retire in a few years and drop into a much lower tax bracket. All else being equal, it might make sense from a tax liability stand point to wait on that sale until you’ve retired to pay less tax on the proceeds of your sale. This type of planning is best done with your tax professional.

It’s Not All Bad

Sometimes we hear people complain about their tax bills around this time of year.  To all those high income earners: would you rather make less money? It's generally a good problem to pay a lot of taxes because it means your making a lot of income! Make the best of the situation by maximizing allowable deductions and efficient tax planning.

That’s a wrap for the tax season. How was tax season for you?