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

10 Replies

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!

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.

I don't think you'll find a good bookkeeper for what it's costing you now,  Add in taxes and benefits and it will cost you more.  I'd say keep what you have and add a PT Bk sometime in the future.  You will have to train them and probably burn and churn several before you find the right one.  

Thanks For the input Frank. 

Bob, thanks for your reply, at what point would you say the tipping point is for adding a part time Bookeeper in the future as you suggested?

Keith - how many properties/entities do you have? You do not need a CPA until year-end. An "in-house" accountant should be separate from your CPA.

CPA tends to do things in tax perspective and not a real estate accountant perspective.

Depending how you much of a workload, I highly doubt you need to spend $2800/month on day-to-day basis.

Originally posted by @Keith Hebert :

Thanks For the input Frank. 

Bob, thanks for your reply, at what point would you say the tipping point is for adding a part time Bookeeper in the future as you suggested?

 You said you'll eventually have 100 doors, which means you're not there yet. Assuming you're at 30 right now, the actual work should take no more than one to two hours a day. That's 40 hours a month at the most.

You can set up mortgage and utility bills on autopay. How many vendor checks a day? 5 to 10 at the most? How long does it take to post 30 rent payments, 30 minutes? I used memorized transactions to automatically post the monthly rents due from each tenant. Looks like the PM did most of the work here. I used to supervise bookkeepers at several companies, and one to two hours a day for what you have is my estimate. You don't appear to do payroll which used to be very time consuming without software, and you don't even have that. With QuickBooks it takes 15 minutes to run a payroll for 8 employees.

Check and credit card reconciliation can be time consuming without software. The last company I was with is on QuickBooks, and the monthly reconciliation of the checking account via QuickBooks with 200 to 300 line items run 30 to 40 minutes, per month. That's per account.

Now, this is separate from what the CPA does, tax preparation. But with proper bookkeeping, that should be a snap too. My CPA can do the taxes based on my QuickBooks reports. 

You're not at the tipping point yet, not even near it.

We have 40 long term tenant doors between 4 entities and just about to dip our toes in short term Airbnb with an additional 5 doors which are being renovated right now. Bookkeeping is currently housed in the same office as my CPA now. It is done by her staff with her oversight. I appreciate all of the feedback. You guys are awesome! Been at this for a some time now but don’t know what I don’t know. Just want to streamline and improve where needed. I’ve had a close relationship with her office with very open  communication and she would like to talk about efficiency and capping the rates. Hope this additional insight answers some of the questions. 

Originally posted by @Keith Hebert :

We have 40 long term tenant doors between 4 entities and just about to dip our toes in short term Airbnb with an additional 5 doors which are being renovated right now. Bookkeeping is currently housed in the same office as my CPA now. It is done by her staff with her oversight. I appreciate all of the feedback. You guys are awesome! Been at this for a some time now but don’t know what I don’t know. Just want to streamline and improve where needed. I’ve had a close relationship with her office with very open  communication and she would like to talk about efficiency and capping the rates. Hope this additional insight answers some of the questions. 

Sounds like a good plan. If you're comfortable with her, have good communications, capping the rates is way to go. It's a good idea to know what accounting software your CPA use in case you have to switch.

BTW, rates for bookkeepers around here run $25-$30/hour. At non-profits where I hire them, they run $15/hour and we get semi retired people, familiar with accounting but less familiar with modern software. I have to go through a few to select someone decent. But if you have a CPA supervising, you don't need to be paying $45.00. A bookkeeper at $45/hour should be able to do all the work you got in an hour a day, 20 hours a month. A $15/hr. guy, maybe 2 plus hours.

But from my experience, having a bookkeeper on your payroll, unsupervised, is a little dangerous, particular if they the pay the bills.

Thanks so much Frank. I appreciate all of your insight. She's going to present a plan and offer to me within the next few days and I feel like this may be a good opportunity to expand on many fronts. The software is Quickbooks (not the online version). Each individual house is broken down into a chart of accounts as per Real Estate Accounting guru Amanda Hann. I hired Amanda a couple years back to look over our accounting and returns to make sure we were heading in the right direction. I learned several years back that not all CPA's know or specialize in real estate not are they adept at strategy. I've also hired Diane Kennedy in years past for the same reason. Good stuff. 

@Keith Hebert My gut says you’re overpaying. You can find a bookkeeper for less, much less. Can your cpa do both and have like one lump sum charge per month? 2800 a month seems absurd. There was a guy on the BP podcast a while back. He had over 120 doors. Cpa cost him 5k annually. So not sure why it’s so expensive. I don’t have anywhere near that many properties but I’m guessing you can have it done for less. Your property manager should be cutting most checks to vendors if they do all the day to day managing, then have a part time book keeper you pay 1-5 hours a month to reconcile everything. For right now I am doing the accounting (learning how currently) myself until I have many many more properties
@Keith Hebert You ‘ve gotten alot of good advice on here, my advice is pay top dollar for high value/low frequency tasks and look at outsourcing your low value high frequency tasks. Pay a CPA to do your taxes and review your books on a quarterly or annual basis -get a bookeeper (there is alot of good 3rd party bookeeping services that work remote) have them do all the data entry/recs and set up checks so all you have to do is print and sign them. -set up a good system with some controls in place to ensure your invoices approved/checks cut and paid is being monitored. -Either get a report weekly or have someone manage your cash flow as nothing kills a business faster than short term liquidity. I think its a poor use of money to pay a CPA to reconcile your bank statements, you can sync your bank with quick books and quickbooks will match a large portion of the transactions for you.