To bookkeep or not to bookkeep?

34 Replies

Hello fellow BP members! Looking for a little advice..

Little background: I am a financial analyst for a multifamily developer, so i understand real estate and all of the financials associated, but i am definitely not accountant. I currently own 7 rentals, with 2 more under contract; all are self-managed through Cozy.co.  

I am very quickly realizing that if I do not get a serious grip on this whole weekly/monthly bookkeeping thing, it could get out hand. I want to treat the properties as a business, like they should be treated(and generally do in all other areas), with weekly bookkeeping and monthly/yearly reports. 

My question is: Should I spend the time to learn an accounting software like Quicken, as well as the time imputing information weekly and keep the "books" myself? Or outsource this task to an actual bookkeeper and keep my energy focused on other aspects of the business? And also, should the bookkeeper be an online service or local firm?

My goal is to acquire another 10 units next year, and so on etc., etc. I don't plan on stopping the acquisition train anytime soon.

Any advice from investors who have faced this dilemma? What was your solution, and how did it pan-out?

Thank you so much in advance for any advice/insight!

@Sterling Fields Being an investor and an Accountant, you should make your decision depending on:

- Would the time you spend on doing bookkeeping used to making the next deal and increasing your equity and wealth?

- Would you like to be a bookkeeper or a CFO?

There is always a learning curve. But once you decide and change your mindset, it will be a breeze to handle any task.

If you find someone to make sure you get someone is not just entering your details from the downloadable bank statements.

So what is your time worth?

No Quicken please, we get emails every day to transfer and convert their data to QuickBooks

As an entrepreneur & business owner, hire people that specialize in their craft. Don't learn how to keep books. Instead, you hire somebody that's been keeping books for 40 hours/week for 20 years and is an absolute PRO at it. 

Don't get bogged down & distracted by things you can hire somebody to do for $20-50/hour. It'll stunt your growth big-time. Focus on high ROI activities. Generating leads, building relationships, and developing your business. That's how you grow quickly!

This is about accounting. First property management accounting. Second about accounting in general. I did a deep dive at the code level few years ago with Buildium. They do a pretty nice job for property management, but leave out some other accounting features, the owners decided not to include. In most cases Buildium is good for property management and Quickbooks is overkill. If you are property flipper or do capital expenditures that affects the asset basis, Buildium is not the correct choice. Most landlords don't do that and if in one year they must replace a roof, take those numbers to a CPA at year end. (for that one year)

I also have coded xero integrations end to end at the code level. So I understand the internals and GAAP.

Recently we replace Quickbooks and Xero altogether. They are not the future. Since AI and Machine learning have come to maturity, the accountant as a profession will be replaced. We code this now. Accounting as we know it will not be a piece of software. Where humans engage with it. This 70 year old profession is now being replaced by learning robots. This industry is ripe for disruption. 

I have more than 15 years of real estate accounting experience and every company has a director of finance and accounting separated. 

As an accountant (controller) and a consultant, accounting isn't something you can just pick up because it takes a lot of time and understanding how things need to be coded, making sure the CPA is happy with how the financials look and other misc things.

Just think of this, do you think you can effectively speak with the CPA(s) when it comes down to it? 

I say this all the time 

"All CPAs are accountants, but not all accountants are CPAs; Not all CPAs and accountants understand Real Estate. Choose wisely."

CPAs love to use QB for the simplicity for reporting tax purposes, but for actual internal accounting, I have never used QB for all the places I've worked for (small to large firms). 

Outsourcing remotely is fine as long as they know real estate. 

@Sterling Fields  

i second what @Gita Faust said to you: What's your time worth? What are you long term plans? Do you want to grow exponentially bigger? 

While I believe it is important to understand how things are done, it is not necessary to make it into DIY project. If you plan to grow your investments business, delegate the work to others. Always verify their work but let them handle it for you.

Best!

Just a word of caution: there are a LOT of terrible bookkeepers out there. Pls be sure to ask your CPA for a referral. 

Originally posted by @Jeff Gates :.

Recently we replace Quickbooks and Xero altogether. They are not the future. Since AI and Machine learning have come to maturity, the accountant as a profession will be replaced. We code this now. Accounting as we know it will not be a piece of software. Where humans engage with it. This 70 year old profession is now being replaced by learning robots. This industry is ripe for disruption. 

 Jeff, with respect, I disagree. Not to hijack this thread, but a computer will never know if what you bought at Home Depot is turnover expense or a capital improvement....or how to interpret that into the current tax code and handle it appropriately. 

Having said that, none of us doing our own dental work, right? Yes, you can learn and you should understand what your financial reports mean but I’d suggest outsourcing to a qualified bookkeeper with an understanding in real estate. 

Originally posted by @Gita Faust :

@Sterling Fields Being an investor and an Accountant, you should make your decision depending on:

- Would the time you spend on doing bookkeeping used to making the next deal and increasing your equity and wealth?

- Would you like to be a bookkeeper or a CFO?

There is always a learning curve. But once you decide and change your mindset, it will be a breeze to handle any task.

If you find someone to make sure you get someone is not just entering your details from the downloadable bank statements.

So what is your time worth?

No Quicken please, we get emails every day to transfer and convert their data to QuickBooks

@Gita Faust I do feel like my time would be better spent growing my business; i am much better at the long term planning aspect than the day to day record keeping. I agree with you completely on the fact that if you put your mind to learning something it can absolutely be accomplished. I will definitely make it a point to find a bookkeeper that takes into account everything outside of the bank statement. Also, thanks for the Quickbooks tip. (shows you how much i know about the subject area:) ) Thank you so much for your feedback!

Originally posted by @Jeff Gates :

We have a long way to go...Quickbooks is the automated industry leader and it sucks.

@Sterling Fields I am at 31 units and still do the bookkeeping myself. I use General Ledger (www.getledgers.com) to manage my bookkeeping. A few notes. 

By doing the books myself I get to look at all my transactions and ask myself "why the heck am I spending so much on that." Helps to keep me in check. When someone else does the work you will likely just get the statement and think to yourself that the numbers sound about right and not to worry. 

General Ledger is probably the simplest tool possible that allows automated transaction download. I spend about 5min each week categorizing transactions into the different properties that I own. Keep up on it and then I send over the fully categorized transaction statement to my CPA at the end of the year for review and tax prep. Can do it periodically throughout the year as well if you choose to. 

Originally posted by @Ty Frankel :

As an entrepreneur & business owner, hire people that specialize in their craft. Don't learn how to keep books. Instead, you hire somebody that's been keeping books for 40 hours/week for 20 years and is an absolute PRO at it. 

Don't get bogged down & distracted by things you can hire somebody to do for $20-50/hour. It'll stunt your growth big-time. Focus on high ROI activities. Generating leads, building relationships, and developing your business. That's how you grow quickly!

You took the words right out of my mouth. That's exactly how i feel in terms of long term growth. It's hard to start acquiring team-members when you are so early in your investing career. Paying people to do other jobs when there isn't a ton of money to go around to begin with. I guess i should have posed my question another way: Is bookkeeping something that should be hired out this early in my investing career? It is the long term plan for sure; but is 9 units enough of a scale to pay someone for this position yet? I guess it's a pretty important role so i would assume yes? Thank you for your feedback!

@Sterling Fields I highly recommend hiring someone to manage the books early. Since you are still early in the game, the fees shouldn't be much. As for what Joel said about likely getting only a statement, that statement is false.

If you have someone who knows what they are doing, they should be able to provide you a detailed expense distribution.

Isn't our life automated? from watching Netflix or even to the fact using our iPhone or any there off?

Accounting, bookkeeping, and tax is never going to be 100% automated, too many variables in the tax law, your tax bracket and the list goes on....Neither is QuickBooks Desktop going away.

For each property do you:

  • estimate
  • budget
  • forecast
  • record what you ordered or subbed?

Are you looking for a quick way to enter your transactions to get your taxes done? 

Are you using a software because your tax preparer told you to?

@Simon W. - I hope you won't mind me adding to your saying: "All CPAs are accountants, but not all accountants are CPAs; Not all CPAs and accountants understand Real Estate. Choose wisely."

"All CPAs, accountants, bookkeepers, CFO, Controller, and tax preparers are not real estate QuickBooks experts either."

Let me ask you, will buying and closing a real estate be automated? 

I partially agree with both @Gita Faust & @Jeff Gates

Is the accounting industry ripe for disruption? Yes.

I've discussed this with many accountants and the majority know this. If you've wondered why accountants are now calling themselves "business advisors", it's because the value is not in doing your repetitive bookkeeping, it's in advice around ever-changing variables like the best tax structures and reaching your financial goals.

Companies like https://www.botkeeper.com/ have raised huge rounds of investment, not because they replace accountants completely, but because they automate most of the repetitive work and use a few accountants for the tricky details like what @Cathie Kovacs pointed out.

Gita is right that quickbooks desktop is not going anywhere, but this is because it is a hassle to jump ship from quickbooks desktop once it's set up not because its the best solution for your bookkeeping.

After building Kitt I truely got an insight into just how much could be automated in accounting, especially in real estate. We rely on consistent cashflow from our property investments which can easily be leveraged to save you time and money. If you've ever built rules in Xero or QBO you'll know what I mean. I work along-side real estate accountants and business advisors that understand that automation is shifting the accounting industry and it's not as bad as it sounds. Yes, there may be less mundane repetitive work, but that also means there's more time for creating true value for their client and really understanding their financial goals and how they could achieve them.

Accountants won't disappear but their role is shaping into something quite different.

Hi Sterling, while quickbooks is the most preferred accounting software for tax accountants there are other softwares out there that are free and just as useful. For instance, I use Wave to keep track of all my assets, liabilities, revenue, and expenses. Wave is free, automatically connects right to your credit cards or bank, and prints out all the necessary financial statements your tax accountant will want to see. 

There is no way that Accounting is being automated. At least, I know Real estate accounting isn't. When you are dealing with Lenders on a regular basis, you will need to move things around and omit things that are not part of the discussion. Budget Forecasting is not something that can be done without discussing what is the next step. Will there be a roof repair/replacement, are we expecting to fix up the unit IF the tenant moves out? These are something that requires planning and strategy.

Originally posted by @Joel Florek :

@Sterling Fields I am at 31 units and still do the bookkeeping myself. I use General Ledger (www.getledgers.com) to manage my bookkeeping. A few notes. 

By doing the books myself I get to look at all my transactions and ask myself "why the heck am I spending so much on that." Helps to keep me in check. When someone else does the work you will likely just get the statement and think to yourself that the numbers sound about right and not to worry. 

General Ledger is probably the simplest tool possible that allows automated transaction download. I spend about 5min each week categorizing transactions into the different properties that I own. Keep up on it and then I send over the fully categorized transaction statement to my CPA at the end of the year for review and tax prep. Can do it periodically throughout the year as well if you choose to. 

Thanks for your input Joel! Me being a multi-family financial analyst, i am a little anal about expenses. So i am not too worried about digging into the data each month and asking questions. Plus my thought is that i would be sending all of the information to the book-keeper anyways?

I will definitely look into getledgers.com. However, i do have a few reservations about using an online software like that one. Correct me if i am wrong, but my feeling is that it won't be able to help me with certain calculations (i.e. depreciation if i have a basis increase, or interest expense if i have a refinance), or keep up with the balance sheet and cash flow statements. Is there somewhere i can track cash flow from non-operating activities? (i.e. cash-out refinance of a property, putting down-payment on a new property).

Originally posted by @Gabe Meikle :

I partially agree with both @Gita Faust & @Jeff Gates

Is the accounting industry ripe for disruption? Yes.

I've discussed this with many accountants and the majority know this. If you've wondered why accountants are now calling themselves "business advisors", it's because the value is not in doing your repetitive bookkeeping, it's in advice around ever-changing variables like the best tax structures and reaching your financial goals.

Companies like https://www.botkeeper.com/ have raised huge rounds of investment, not because they replace accountants completely, but because they automate most of the repetitive work and use a few accountants for the tricky details like what @Cathie Kovacs pointed out.

Gita is right that quickbooks desktop is not going anywhere, but this is because it is a hassle to jump ship from quickbooks desktop once it's set up not because its the best solution for your bookkeeping.

After building Kitt I truely got an insight into just how much could be automated in accounting, especially in real estate. We rely on consistent cashflow from our property investments which can easily be leveraged to save you time and money. If you've ever built rules in Xero or QBO you'll know what I mean. I work along-side real estate accountants and business advisors that understand that automation is shifting the accounting industry and it's not as bad as it sounds. Yes, there may be less mundane repetitive work, but that also means there's more time for creating true value for their client and really understanding their financial goals and how they could achieve them.

Accountants won't disappear but their role is shaping into something quite different.

 Gabe, thanks for the feedback! Kitt looks like an awesome software! However, my question is the same one that i asked Joel above: Will this software be able to track activities outside of operating expenses? Maybe this is a bad question because i am not a CPA and don't understand that most software CAN do this; but working for CPAs, i know that accounting can be very particular, detailed, and tricky when it comes to the "everything else" outside of normal operating revenue and expenses (refinance, capital gains, investing activities, etc.). My thought was that outsourcing this to an accountant would relieve myself from the headache of trying to figure all of that out. Just because i have the tools in front of my doesn't mean that i will be able to understand how to use them.  

Originally posted by @Simon W. :

There is no way that Accounting is being automated. At least, I know Real estate accounting isn't. When you are dealing with Lenders on a regular basis, you will need to move things around and omit things that are not part of the discussion. Budget Forecasting is not something that can be done without discussing what is the next step. Will there be a roof repair/replacement, are we expecting to fix up the unit IF the tenant moves out? These are something that requires planning and strategy.

 Simon, I am leaning towards your advice to let the professionals do their job and let me continue looking for deals. Having a strong real-estate focused CPA on your team is an absolute must. My CPA last year was not real-estate specific and i wanted to beat my head against the wall when i started explaining to him some of the deductions that were available to me as an investor. That will NEVER happen again. So the next question is what should a competent bookkeeper run me for just 11 units? My fear is that the RIGHT bookkeeper will cost me half of my yearly profits, causing my growth to stagnant. In which case, i should just suck it up and keep the books myself until my portfolio grows large enough to support the right person for the job. 

And it is ok to do your Bookkeeping your self. But just make sure you invest in time and money to learn a trade.

Now the questions do you want to be a:

  • CFO?
  • Controller?
  • Accountant?
  • Data entry person?
  • Bookkeeper?
  • Tax Preparer? (filing your own taxes) 

If you want to do your own data entry, learn to be a Bookkeeper, an Accountant, a Controller, and a CFO.

Originally posted by @Sterling Fields :
So the next question is what should a competent bookkeeper run me for just 11 units? My fear is that the RIGHT bookkeeper will cost me half of my yearly profits, causing my growth to stagnant. In which case, i should just suck it up and keep the books myself until my portfolio grows large enough to support the right person for the job. 

Know your average number of transactions per month and ask for a quote from few accounting/bookkeeping firms with REI background, on how much it will cost to set up and maintain the books. You can shop local or online.

Can you hire a VA to work on your bookkeeping that has an REI background?

@Sterling Fields at this point it is exactly when I hired a bookkeeper. My husband is an accountant and he was keeping track of our expenses on Excel but I felt it wasn't enough. I hired someone once a week and we go through everything. Since I've only been doing this for a year plus I want to understand my numbers more so I sit down with her when she does it once a week. It's my first higher (Bessie's contractors) and it makes such a huge difference.

@Sterling Fields  Great question!  I'm asking the same thing.  Looking forward to hearing more opinions and experiences.

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