Recommendation for Bookkeeping?

[Jeff V.]

Hello Everyone, 

I hope everyone is having a Merry Christmas! 

I'll give a bit of back story before posing my question in order to get the best response to my situation. 

I have been doing all of our bookkeeping for our real estate business. We have been doing BRRR deals and I have been able to handle all of the bookkeeping so far.

We are looking looking at a few areas to expand our current operations. I have been talking with a few non performing note investors as well as some flippers. We are entertaining the concept of doing a JV in the near future. In both cases it will be equity deals.

I can see either path will most likely be just beyond my bookkeeping abilities.  I'm looking to hear what others have done to get over this hurdle without breaking the bank.

I currently have a CPA, but he is only involved at year end and takes forever to get back to me on any bookkeeping questions I have. I'm not sure if this is normal or if it's not really his lane.

So what sort of bookkeeping / accounting systems or arrangements do you have with your financial advisors? National firm or Local? Bookkeeper or Accountant? Frequency of contact: weekly, monthly or quarterly?  What should one expect to pay for a relatively small amount of bookkeeping for a new operation? 

If you have one that is taking clients and has affordable rates I would be interested in their contact info or company name as well.

Currently looking for a solution that is scalable. I currently only spent about 1 - 2 hrs a month doing the books. Time isn't the issue though, it's the complicated JV accounting that I'm just not sure how to properly account for.

I may be over complicating things but I'm interested in hearing what others have done.

Thanks,

Jeff V

[Michael Plaks]

@Jeff V.

I'll start with CPA involvement. Each accountant has his own business model. Those who only prepare tax returns charge you for that service specifically. Expecting him to include year-long support and tax planning for free is not fair. Those accountants usually offer tax planning consultations throughout the year, in addition to tax preparation. Again, it's another service, and it is usually charged separately. This should make sense if you compare this to how doctors charge.

Then, there is a continuing service model. You pay a monthly subscription fee, and it covers tax preparation, tax planning, help with IRS issues, and a variety of other services - for example, bookkeeping is sometimes part of the deal. Several accountants here on BP operate on this model. My firm is among a few that offer both models.

Next, bookkeeping. Finding a competent REI bookkeeper is ridiculously hard. I know, because I've been continuously looking for them myself, and have found very few. The problem here is that REI bookkeeping is VERY different from traditional bookkeeping. If you're a consultant, a Realtor, or a retailer - the bookkeeping is a straightforward task. You can use various accounting software out of the box, like QuickBooks or Xero. You can use a variety of emerging cloud-based solutions that provide a cheap bookkeeping platform, often with backend support by accountants a phone call away. And, of course, you can hire any traditional bookkeeper and expect the job taken care of.

Not so with REI bookkeeping. Traditional bookkeepers, including those with the high-end credentials and certifications and years of experience, attempt to handle REI business as any other business - resulting in a total mess, unusable for tax preparation. I taught a 2-day (that is 14 hours) seminar on bookkeeping for investors and their bookkeepers, and we only cover fundamentals. Yes, it is that complex if you do it right. 

Even core REI stuff like rental properties, repairs, escrows, etc. stumps most bookkeepers. Add to that hard money, JVs, owner financing and especially notes - and you should not be surprised why finding a good REI bookkeeper is more difficult than finding a good REI accountant or lawyer. The real good ones are super-busy and expensive. Most others are waste of money, frankly. Speaking from (extensive) experience.

To make things worse, there is almost unavoidable disconnect between bookkeepers and accountants - unless they have a business relationship and worked out their differences one-on-one. 

Recommendations? Your best bet, in my opinion, is to work with a REI accountant who provides bookkeeping services in-house - either an actual day-to-day bookkeeping or an ongoing review of your books. The second best option is to find a REI accountant who has an established relationship with an independent bookkeeper and endorses that bookkeeper's service. The remaining third option is to pay your current accountant (or whoever you choose as his replacement) for a detailed review of how he wants your books organized, and specifically your more complex deals - and then try to carefully implement his blueprint either yourself or thru some bookkeeper.

There is one unacceptable option, practically guaranteed to lead to frustration and an enormous waste of resources. It is to adapt someone's bookkeeping system (there're several on the market) and then expect that your accountant will be able to work with the results. Chances are - he won't be able to, unless you go to the same accountant who created the system in the first place. Which happens to be my recommended option that I already mentioned anyway.

I realize this message is not what you want to hear, but it is the true state of the industry. 

Maybe it's not the best analogy, but looking for "the right bookkeeping system" without having it approved by your CPA beforehand is like picking the best furniture for your house without consulting your wife. :)  Good luck.