need pro advice on whether to hire an in-house bookkeeper

[Keith Hebert]

Hello fellow investors,

I need some professional insight. We have several dozen rental properties, flip a few houses per year and are just getting ready to add a new venture with a few short term Airbnb's. I've had and still currently have a local CPA/Bookkeeper who just raised their rates from $100 to $125 per hour for CPA and from $35-$45 per hour for bookkeeping. My total bill last month was $2800 which put's me on track thus far for over 33k per year not including tax returns.I should disclose that I have another business that keeps me traveling pretty much half the year.

Our Real Estate business operation looks like this:

Property manager handles tenants and collects rents, he deposits all rents into our accounts and coordinates the rent roll with bookkeeping, they cut him a check for his gross collected rent management fee, bank statements are automatically sent to CPA's office for them to reconcile against business credit card statements, they also handle 95% of day to day financial operations from there to include paying contractors, setting up utilities, paying company bills ,bank deposits etc. for 4 and now 5 entities with the short term rental llc.

We have a initial goal of 100 doors so I it's pretty easy to see this cost jumping significanly in the not so distant future. What is reasonable cost for these activities? At what point in time should I consider hiring in house? If I do hire in-house, what should expect to pay?

Thanks in advance for any feedback!

[Frank Chin]

There are several major issues involved. Sounds like you have your entire financial operations outsourced, in your words 95% of the day to day operations. If you're paying $2,800 a month, it's almost like having someone on your payroll doing it.

Let me start off by saying I have a real estate portfolio, for a time another business. The difference is I did the bookkeeping, but  certain aspects let the CPA and his staff also do it for comparison. At one time after the acquisition of my other business, I switched CPA's, believing the other guy can service me better, as he had a larger staff. 

Let me go over the issues.

Switching CPA's, with a firm so intimately involved in your business should be done carefully. The cost should not be the whole consideration. My CPA handled things for me for over ten years, before I bought the another business. When I bought my business, the other owner had a CPA, intimately involved in his business, so I have to decide whether to have one CPA for everything, one CPA for each business, which will be more expensive. I chose to have one CPA to do bookkeeping and taxes.

Turned out I made a big mistake. I had the other CPA take over my books, including RE accounting. Since he had his own system and software, he had to do everything from scratch. Fortunately, I knew bookkeeping, long story, but everything was done wrong. He had one of his more experienced staff reconstruct my books on their system, which includes, asset costs, depreciation etc. and reviewing the balance sheet, it was totally different than what I had. Fortunately, my taxes for the year was not finished by August, actually was done wrong, the new CPA went on vacation, so I had my old CPA review what was done and he had to redo the taxes from scratch. I wind up paying both CPA's, though the new CPA charged more, he refused to reduce what he charged me, so I finally said, redo my books the right way and I'll pay you, even though I didn't used the tax returns you prepared. He refused, but I had no time to take him to court and sue him.

The other issue I have in you situation is try to be cheap and wind up picking someone based on cost. I had to deal with many smaller suppliers in my other business, where they hire a cheap bookkeepers to take over the financial operations. Not to say it's common, they found embezzlements, one guy and his partner had a bookkeeper embezzle over $100,000 over a 2 year period. I started a business installing accounting software where I found out the former bookkeeper of my customer embezzled $200,000, over a one year period and they had me go through the books to figure out how he did it. The funny part of the story is they hired a private eye and got the police looking for the bookkeeper, who was there when I installed the software so I know him by sight. The company told me the police said the bookkeeper skipped town, moved to Israel. I laughed, I told them I just saw him a few days ago shopping in my neighborhood. The guy tried to avoid me, I walked up to him and said hello, so I know it's him.

What was common in these cases is the bookkeeper did 99% of the day to day operations with no one watching over him.

Now, I haven't commented on costs. And yes, you can probably do it cheaper if they can do it more efficiently. However, at this point, you are hands off, so you have no idea how they do it and how much work is involved. Best is to sit down with them to go through how they do it before you do something drastic.