When to Bite the Bullet and Find a Spendy Accountant?

Question

Hi BP Family,

Long time reader looking for a bit of advice as my business partner and I's portfolio grows. Up until now, we have not used an LLC to purchase or protect any of the properties mainly to limit down payments to 15% instead of 25% as liquid cash has always been the hardest to come by. We have moved into each property making it our primary residence and remodeled it after we purchased to build as much equity as we could early on. Over the past 14 months in this crazy market, we have somehow found a way to buy 3 properties off-market bringing our total to 5 properties.

In the past, we have filed individual taxes with schedule E but with the portfolio growing to be something more serious business rather than hobby house fixing, we are looking into Accountants/Tax Prep. I was fairly shocked to see most are $2k+ per year or $300-$500 a month for their services. Do these Real Estate CPAs really save you more than you spend on them in a year?

I understand that may be the wrong question to ask as they obviously provide many other benefits than just saving on taxes but it seems to be the most quantifiable point to ask first.

Thanks in advance for any and all advice on the matter!

Derek Felch · Answer

My opinion is that some investors have a need for a CPA, but not all that use a CPA need to. It can be kind of like going to a brain surgeon, because you had a headach. I do think there can be value in having someone prepare your taxes, but you want to find someone who a)understands real estate investing, and b) is willing to help you with planning and strategies as your business grows. I also think that bookkeeping and tax preparing should be evaluated with that question referenced often on the podcasts... "What is the value of my time?".

Lane Kawaoka · Answer

95% of CPA's are the run of mill take the least past of resistance crowd. Perhaps a reason why they still have a day job. Of the good ones or should I say even a good one will not be able to give you full financial planning advice such as how much to pull out of retirement accounts or what deals to go into. Think about it... its unfair for them because 1) They don't know the deal risk profiles nor the operators, 2) They don't know your future deployment plans to account for your estimated Adjusted Gross Income (effective tax rate) for the next few years, and 3) they don't know how much depreciation is going from the plethora of investments you look to go into. This is where I tell my investors that it is your job to understand what you can and cannot do and lead your professionals who JOB is to complete the technical paper work. CPA/Lawyers are Contractors but you need to be or outsource someone to be your Architect. In other words, I don't advocate to working for a good CPA and trusting them to do it... their job is to fill in the right forms but you need to be in control as the owner and not let the consultant dictate the scope of work. I think it comes down to you the investor needing to raise your financial IQ to be able to advise your tax professional on what to do so they can implement the strategy instead of them strong arming you into a conservative and poor tax play.

When to Bite the Bullet and Find a Spendy Accountant?

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