An accountant may seem nice when you interview them, but if you don’t pay attention to the warning signs, you might find yourself facing serious penalties for tax evasion and fraud.
It’s crucial to spot a bad accountant before they can put your entire real estate business at risk. Below, we’ve put together a couple of warning signs of an unreliable accountant to make sure that you don’t hire someone who will only steal your assets, give your incorrect advice, and more.
What is Real Estate Accounting?
Real estate accounting focuses on real estate investments. Accountants who work in real estate accounting manage multiple thousand-dollar transactions at once. If you are a real estate investor or developer, it’s important to keep accurate records of your transactions to avoid legal pitfalls. A real estate accountant not only handles bookkeeping but will also summarize and report your finances to regulatory agencies. In most cases, he/she will also analyze your finances to help you make better decisions for your investment.
Why Do You Need a Real Estate Accountant?
#1 You Aren’t an Expert
Accounting can be difficult, especially when you throw taxation into the mix. Accountants spend years studying the subject, not to mention the requirements they have to comply with before they can practice. What’s more, is that accountants need to be up-to-date with changes to the tax code.
The average real estate investor might know a thing or two about taxes, accounting, etc., but it’s unlikely that they know everything. Their knowledge is nowhere near what a licensed real estate accountant has. By hiring a skilled accountant, you can focus on what you know, such as investing in more real estate, managing multiple properties, and so on.
#2 You Need to Create Separate Accounts
You know what they say — you should never mix business with pleasure. Having separate accounts for your personal and professional transactions can help you avoid a number of problems including inaccurate tax returns and mixed-up bookkeeping.
A professional real estate accountant can separate your accounts, making sure that all of your business transactions stay in one place. You can conveniently review your transactions and see where your money is going.
#3 You’ll Get to Evaluate Your Expenses
Without a real estate accountant, you’re at risk of overspending. When you’re in the real estate business, whether as an investor, landlord, or developer, you should keep your expenses to a minimum. However, this can be a tricky task especially when you’re renovating your property.
A good real estate accountant can accurately document all of your expenses. Usually, summarized forms of these records are kept in an online portal for easy access. That way, you can find out where you’re spending too much.
Warning Signs of a Bad Real Estate Accountant
#1 They Don’t Practice Confidentiality
Never trust an accountant who isn’t discreet when it comes to their other clients. It is acceptable for an accountant to mention a thing or two about their clients to demonstrate their expertise, however, when the accountant mentions confidential information (e.g. names, financial statements, etc.), this indicates that he/she probably won’t keep your financial matters a secret.
#2 They Encourage Dishonest Practices
Every accountant wants you to save money. While there’s nothing wrong with this, it should only be done honestly. There are ways to lower your tax bill without submitting false tax returns. A professional real estate accountant should be well-versed in the legitimate ways to qualify for tax incentives, tax deductions, and more.
#3 They Don’t Give Direct Answers
Aside from managing your property’s books, it is the responsibility of your future accountant to ensure that you comply with the IRS. Naturally, you’re going to have questions about tax codes, tax deductions, tax authorities, and more. Qualified accountants will be able to give you complete and comprehensive answers, providing you with examples that are usually based on their professional experience. If he/she seems dodgy or tells you “let me handle it”, this indicates that they might not truly know what they’re doing.
#4 They Make Unrealistic Promises
If it sounds too good to be true, it probably is. Be cautious if your prospective accountant tells you that they’ll help you save thousands of dollars on taxes, etc. When interviewing applicants, it’s expected that they will try to convince you why they’re the best person for the job. However, steer clear from applicants who promise unrealistic and exaggerated results. A legitimate accountant should have to first review your financial statements before he/she can make a claim.
#5 They Don’t Understand the Real Estate Market
It’s rare to find an accountant who is proficient in all industries, so if an applicant walks through your door claiming that he/she knows it all, be wary. Your real estate accountant should thoroughly understand the real estate market because this is the only way they can help you stay compliant with tax laws that apply specifically to your industry.
#6 They Don’t Communicate Clearly
As with anyone you hire, may it be a property manager, assistant, etc., communication is one of the most essential skills to have. This includes promptly answering phone calls, responding to emails, replying to text messages, and so on. Understandably, he/she might be busy, but since you’re their client, they should prioritize your concerns. Your future real estate accountant should be available to assist you at moment’s notice.
#7 They Don’t Explain Things Clearly
Any good accountant will put in the effort of explaining technical terms to their client in a concise and easy-to-understand manner. If your accountant provides you complicated explanations that confuse you even more, you’ve hired a bad accountant. If they offer financial advice, they should be able to support it with the right financial statements, as well as clearly explain the reasoning behind it.
If after reading these seven warning signs you noticed that your existing accountant fits the description, it may be time to find a new accountant. It’s better to replace a bad accountant than to retain one who might be the downfall of your real estate business.
Luxury Property Care works with licensed accountants who undergo continuing education to keep themselves up-to-date with local and state tax laws. Together with Luxury Property Care’s property managers, our accountants handle all of our clients’ finances, from invoicing to monthly reporting.