Accounting 101 : Top Tips for Real Estate Investors
Many of our members have asked for some accounting tips for real estate investors so we asked some of the experts in our community and compiled a list of helpful suggestions. We hope you find them helpful. Don’t be afraid to comment below or on the Estateya feed to let us know what you think!
Tip 1: Find the Right CPA –
This sounds simple enough, but by right CPA, we mean someone that also invests in real estate and understands this business; preferably, someone who buys and sells real estate for investment purposes.
Tip 2: Separate Your Short-Term Investment Activities from Your Long-Term Investment Activities
One of the first things you and your CPA should do together is separate your short-term investing activities (i.e., less than one year) from your long-term activities (more than one year). Examples of short-term investments are flips and wholesales. An example of a long-term investment, on the other hand, is when you own a rental income property.
Tip 3: Learn the Cash Flow Implications of Investing
Since real estate investment often requires large down payments, make sure that you will have the capital you need after the initial investment to maintain the property, to pay taxes, fees, and other property-related expenses, and deal with vacancies. While real estate investment is a great way to earn income, it’s not a venture that you want to enter into blindly.
Tip 4: Liability – Protect Yourself
Since you are responsible for the health, safety and well-being of your tenants and their guests in terms of your property and the condition it is in, make sure that you protect yourself with properly written leases that specify proper conduct and use of your properties, and the penalties for violating those rules. In essence, insure yourself as much as possible against liability incurred on your property. Also, it is very important to consult an expert in this area, as just buying more insurance isn’t always the answer. For example, sometimes it might be necessary to divide your properties up based on use, equity, liability etc. Plus, make sure you adequately insure yourself against loss and property damage, as distinct from liability too. Again, we can’t emphasize enough that you work with a real professional in this area; someone who can help you get all the right insurance for your property so that you are protected. And don’t delay! Anything you do after an exposure will be more expensive and less effective.
Tip 5: Income Property is one of the Best Ways to Earn Money (in the US)
There are so many reasons that make this statement true, but in a nutshell, real estate investment property is amazingly tax-advantaged. Often, you don’t even have to pay taxes on the income it generates, which is truly incredible.
But don’t just take our word for it. According to the Association of Foreign Investors in Real Estate (AFIRE) and the Deloitte survey, more than two-thirds of respondents consider the United States the most stable and secure real estate investment destination. Going forward, 68 percent of respondents plan to increase their portfolio size in the United States.
The bottom line is, if you want to make money, real estate is the way to go. And on that note, don’t forget to visit us on Estateya to see the real estate investment opportunities listed or to post your own deals!