Everything You Need to Know About Outsourced Accounting Services

The Ultimate Guide to Outsourced Accounting for Real Estate Investors

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Guide to Outsourced Accounting Services

Guide to Outsourced Accounting Services

For busy professionals juggling the demands of a full-time job with managing their real estate investments, it’s all too easy for accounting to become an afterthought. If you’re in this position, you know all too well that time is your most valuable resource. You don’t want to be spending time on manual bookkeeping and accounting tasks––you want to be spending time growing your portfolio. 

With that in mind, it’s likely that doing a deep dive into the accounts of your real estate investments probably isn’t at the top. It’s not a glamorous or exciting task, but it is an important one. A robust accounting process makes it much easier to grow your real estate portfolio and build wealth. 

As your portfolio grows, it becomes even more challenging to stay on top of your accounting needs. You may own dozens of properties, each with its own LLCs, bank accounts, expenses, tax strategies, and more. Effectively tracking all of this demands a lot of time and specialized accounting knowledge, and it’s a task that’s often best left to the professionals. 

Outsourcing your accounting holds the answer to this problem. By working with an external CPA firm that specializes in the real estate industry, you can realize a wide range of benefits that have the potential to turbocharge the trajectory of your real estate investment career. 

But if you’re not familiar with outsourced accounting, it can be difficult to know where to start. Fortunately, you’re in the right place. This guide serves as your introduction to outsourced accounting for real estate investors. We’ll explore which elements of accounting you can outsource, weigh up the benefits and drawbacks of outsourcing your accounting needs, and ultimately help you determine whether outsourced accounting services are the right fit for you. 

Read on to learn:

  • What are Client Accounting Services (CAS)?
  • What is outsourced accounting?
  • Who uses outsourced accounting services?
  • Which accounting services can be outsourced?
  • Which accounting and finance leadership roles can be outsourced?
  • Outsourced accounting services pros and cons
  • What to look for in an outsourced accounting partner
  • How to start outsourcing your accounting

At Hall CPA, we help real estate investors minimize their tax burden and gain financial clarity into the performance of their portfolio. Our team of expert real estate CPAs partners with investors in all 50 states to help investors make better financial decisions and manage their portfolio more efficiently. 

Interested in working with us? Request an initial consultation today.

What are Client Accounting Services (CAS)?

What are Client Accounting Services (CAS)?

You might see outsourced accounting referred to interchangeably as Client Accounting Services (CAS). According to a definition from Accounting Today, CAS simply means that a client outsources most, if not all of their accounting work to an external accounting firm. CAS are typically stratified into three key tiers:

  • Bookkeeping services
  • Controller services
  • CFO services

CAS firms often make extensive use of technology to enable a smooth partnership between the client and the accounting firm. These days, many firms rely on cloud-based accounting software with features including performance dashboards, automated connections to bank accounts, and secure access to proprietary data. Having this single repository of all a client’s financial data makes for easy communication between client and accountant. 

Effectively, CAS is a way for busy business owners to outsource some or all of their accounting needs to an external partner. There are often significant benefits to this, but equally, there are some drawbacks to be aware of too. You might gain a more organized approach to keeping track of your finances, but without the right partner, you may lack access to specialized financial knowledge that can help you grow your business faster.  

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What Is Outsourced Accounting?

What Is Outsourced Accounting?

Outsourced accounting is very similar to CAS. At Hall CPA, we offer outsourced accounting to real estate investors. Our team handles the accounting needs of thousands of investors across our real estate advisory, tax preparation, and outsourced accounting practices. 

When you work with an outsourced accounting firm, you typically hand over some (or all) of the daily running of your accounting function to a CPA firm. Your new partner will set up a digital-first accounting infrastructure that’s well-equipped to track the performance of your business. On an ongoing basis, your outsourced accountant will manage this system. 

Depending on the level of service you opt for, you can expect outsourced accounting services to provide monthly financial reports and bank reconciliations. Many firms also offer as-needed advisory services that help you to make the best financial decisions to optimize your returns. 

As we’ll see, all sorts of individuals and businesses leverage outsourced accounting services. Accounting is a highly specialized field, and it’s important you find the right match for your needs. 

Many individuals and businesses outsource their accounting needs. This can be done in two ways. You could outsource your accounting to a traditional local CPA firm. The other option is to outsource your accounting needs to a firm that’s specialized in the industry you operate in. There are various benefits to doing this, the most important being that a specialized firm brings domain expertise that helps you maximize your financial performance. 

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Who Uses Outsourced Accounting Services?

Who Uses Outsourced Accounting Services?

Outsourced accounting services are popular in a variety of industries, including real estate. The global finance and accounting outsourcing industry is valued at $37.9 Billion and is only forecast to grow, with projections estimating the industry will reach $53.4 Billion in value by 2026. Today, 37% of businesses outsource their accounting needs, and we only expect that number to continue going up. 

The popularity of outsourced accounting has increased significantly in recent years as technology has continued to streamline the workflow between client and accountant. In the real estate industry, outsourced accounting services are popular with a variety of professionals, including:

  • Landlords and property owners
  • Wholesalers
  • Real estate syndicate and fund managers
  • Agents and brokers
  • Property flippers

Today, there are more real estate professionals than ever before, and as a result, the market for outsourced real estate accounting services is booming. Many millennials are investing in real estate instead of the stock market, and today, 72.5% of all rental properties in the United States are owned by individual real estate investors

This new generation of real estate investors largely lack the time or expertise to build their own accounting functions and are instead turning to the efficient, digital-first solutions offered by outsourced real estate accounting firms. 

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When Should You Outsource Your Accounting Needs?

When Should You Outsource Your Accounting Needs?

It’s always best to start using an outsourced accounting service early in your investing journey. This ensures you have the financial infrastructure in place to help you scale. 

If you’re just starting out, it’s unlikely there’s enough work to justify paying a full-time accountant or bookkeeper. There’s also the question of the time investment to hire, onboard, and train an accounting team. It’s unlikely you have the skills to do this successfully in the first place, and besides, hiring an internal team is much more expensive than outsourcing your accounting function. 

But once you’ve acquired multiple properties, you’ll find that real estate is a complicated business. You’ll likely have multiple mortgages, different LLCs and bank accounts for each property, and all kinds of expenses––from repairs to property management fees

With all this complexity, it can be easy to not notice that one of your tenants missed a rent payment, or that a utility bill at one property tripled due to a leak. An outsourced accounting firm will implement the processes required to flag these small details, ultimately putting more money in your pocket and helping you to grow your portfolio quicker. 

By outsourcing accounting, real estate investors can leverage external expertise to build the financial foundations required to scale their portfolio to dozens of properties. The right accounting partner will help you manage your cash flow effectively, track mortgage balances and alert you to new opportunities to optimize your performance. 

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Which Accounting Services Can Be Outsourced?

Which Accounting Services Can Be Outsourced?

If you’ve decided it makes sense to outsource at least some portion of your accounting, it’s natural to wonder exactly what accounting services you’re able to outsource. The good news is that pretty much every element of accounting can be outsourced, from creating monthly reports to running payroll. 

Let’s take a look at the accounting services that are most commonly outsourced by real estate investors. 

Outsourced Accounting Infrastructure Management

The first step in many outsourced accounting engagements is often to set up a digital-first accounting infrastructure. Many real estate investors, particularly those with just a few properties, often lack any kind of system to manage the finances of their portfolio. The result of this is that they often have a limited understanding of what’s really going on with their properties. 

A digital accounting system shines a light on this, linking bank accounts for each property, tracking rent payments and expenses, and storing receipts and invoices. An outsourced accounting firm will set all of this up for you in easy-to-use software like Quickbooks. After your new accounting system has been deployed, you can either have the outsourced accounting firm coach you on how to use it or request that they use it to manage your accounting needs on an ongoing basis. 

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Outsourced Bookkeeping

A bookkeeper is often one of the first hires a real estate investor will make as their portfolio begins to grow. A bookkeeper is tasked with keeping your books organized, and their role includes recording transactions, performing bank reconciliations, and maintaining ledgers. If you’re honest with yourself, these are probably some of the last things you want to do––they might be necessary, but they’re time-consuming and monotonous. 

But you can’t just hire a bookkeeper and then forget about them: they need training, technology, and ongoing supervision. If you’re a busy entrepreneur or professional that invests in real estate on the side, it’s unlikely you have either the time or the inclination to do that. 

Instead of hiring a full-time or even part-time bookkeeper, outsource all bookkeeping tasks to an external partner. An accounting firm that offers outsourced bookkeeping services provides significantly more value than a single bookkeeping employee and often does so at less expense to you.  

An accounting firm offering outsourced bookkeeping services will handle all regular bookkeeping tasks on your behalf and ensure all your financial records are up-to-date. Building and maintaining a clean, accurate record of your financial data serves as a vital foundation that enables you to make smarter investment decisions across your portfolio. 

Outsourced Payroll

As your real estate portfolio grows, it’s likely you’ll start to hire employees to help you run your business. These could be contractors, property managers, cleaners, or more, depending on your portfolio strategy and size. At first, you may just have a few part-time employees but as you add more properties to your portfolio you’ll find it necessary to make full-time hires. 

Running payroll for these employees isn’t a straightforward process. It’s not finding software and remembering to run payroll each month you have to consider, you’re an employer. You have to make tax filings, honor data security considerations, and more. If you operate in multiple states, things can get even more complicated. 

Outsourcing payroll takes all this complexity off of your plate and shifts all the heavy lifting to an outsourced accounting partner. That frees up more time for you to focus on what matters––running your business. 

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Outsourced Financial Statements & Reports

Outside of tax filing season, many real estate investors have little insight into how their portfolio is performing. As long as there’s enough money in the bank and the market continues to trend upwards, there’s a sense that everything is going well. 

But surprises can, and frequently do, occur. Perhaps you handed all your accounts over to your accountant to prepare your tax return and discovered you were on the hook for thousands of dollars in taxes you weren’t expecting to pay. Producing financial statements and reports throughout the year can help you avoid these nasty surprises and discover opportunities to optimize your portfolio. 

Many outsourced accounting firms provide regular financial statements and reports to their clients. At Hall CPA, we provide our outsourced accounting clients with monthly financial statements that help them understand the performance of their portfolio and make smarter investment decisions. 

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Which Accounting and Finance Leadership Roles Can be Outsourced?

Which Accounting and Finance Leadership Roles Can be Outsourced?

It’s not just regular everyday accounting services like bookkeeping and payroll that real estate investors can outsource––you can also outsource leadership roles. In doing so, you’ll be able to leverage best practices that other investors in similar positions to you are using. You’ll also have access to insights from experts that can dramatically improve the performance of your portfolio. 

This is an important step in the growth of your business. As you begin to work with external investors and lenders, you’re often subject to more complex requirements. Successfully navigating these requirements demands you have experienced professionals at the helm. 

There are two key accounting and financial leadership roles that are commonly outsourced: Controllers and CFOs. 

Outsourced Controller

A controller is a step up from a bookkeeper and is usually a qualified accountant that supervises the day-to-day financial operations of your business. In the real estate industry, controllers are tasked with managing your accounting software, reconciling bank accounts, checking mortgage balances, and more. 

Much like bookkeepers, controllers need the tools to succeed. You’ll have to hire, onboard, and train them. Unless you’re a professional accountant yourself, it’s difficult to know where to even begin that process, and so instead of hiring in-house, many real estate investors hire an outsourced controller instead. 

Outsourced controller services handle many of the strategic activities of your real estate business, including:

  • Producing financial reports and statements
  • Communicating with lenders and investors
  • Managing your digital accounting infrastructure
  • Monitoring cash flow across multiple accounts and properties

Outsourced CFO

Many well-established real estate businesses have full-time Chief Financial Officers, or CFOs. These highly-qualified professionals are responsible for creating financial processes and controls, driving strategic investments, and forecasting and managing budgets. If you operate hundreds of properties, hiring an internal CFO is a smart decision, but for smaller investors, hiring a well-qualified CFO is usually out of reach.  

Experienced, proven CFOs are hard to come by and expensive to hire. Payscale reports that the average salary of a CFO in the real estate industry is close to $170,000. And that’s just the average––if you want a top-tier CFO who’s going to take your real estate business to the next level, you might have to pay as much as $500,000. 

For many, paying salaries like this is unrealistic, especially in the early stages of their investing journey. Instead, many real estate investors outsource the majority of the tasks that would otherwise be performed by a CFO. 

This represents a much more affordable option, and in many situations, can result in significantly improved performance. Real estate accounting firms that provide outsourced CFO services have huge amounts of lateral experience working with investors with similar goals and can provide strategic guidance that’s backed by real-world evidence.

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Outsourced Accounting Services Pros and Cons

Outsourced Accounting Services Pros and Cons

If you’re considering making the switch to using outsourced accounting services, it’s important to think through the ramifications before committing to a partner. Of course, working with an outsourced accounting partner offers a wide range of benefits, but there are also drawbacks that you’ll need to be aware of. 

Let’s take a closer look at the pros and cons of outsourcing your accounting needs to a CAS firm. 

The Advantages of Outsourced Accounting

For many early-stage real estate investors who may never have partnered with a specialized outsourcing accounting firm, handing your accounting and finance needs over to a true expert can be a game-changer. You might discover opportunities you never knew existed, unlock access to advanced tax strategies that can save you tens of thousands of dollars, and make a wealth of new professional connections in the real estate industry. 

These are just some of the benefits of working with an outsourced real estate accounting firm. Read on to discover further benefits this approach offers. 

Exposure to Industry Expertise 

Outsourcing your accounting function to a domain expert in the real estate accounting field can expose you to a world of knowledge you never knew existed. Real estate accountants deal with clients just like you every day and this level of familiarity makes it possible for you to adopt the same tactics used by the industry’s best investors. 

By working with these specialized accounting professionals, you can start implementing advanced tax strategies that can accelerate your real estate investing career. This includes relatively sophisticated real estate strategies including 1031 exchanges and cost segregation studies

Cost-Effective

Until you reach a relatively large scale, working with an outsourced accounting firm is almost always going to be more cost-effective than hiring an in-house accounting team. Between hiring a bookkeeper, controller, and a CFO, real estate investors could easily shell out hundreds of thousands of dollars in salaries.

An outsourced accounting firm is a much more cost-effective approach. At Hall CPA, our outsourced accounting program starts from just $250 per month. The program follows a proven process that gives you the tools you need to make sure your real estate business remains in optimal financial health. 

Visibility Into New Opportunities

Partnering with an external team of experts can open your eyes to opportunities within your portfolio that you never knew existed. The past few years have seen one of the hottest real estate markets in decades, and many investors could be unwittingly missing out on opportunities to grow their portfolio. 

There are countless examples of the value of having a fresh pair of eyes on your business. Here are a few examples of potential opportunities that the right real estate accounting firm could help you capitalize on:

  • Raising rents to market value: did you know the average rent for a one-bedroom apartment is up 24.4% YoY? If your rents are unchanged from a year ago, you’re leaving money on the table. 
  • Unlocking equity: home prices are up more than 25% since March 2020. If you’ve owned a property for several years, you could be sitting on tens of thousands of dollars in equity that you could use to finance future acquisitions. 
  • Bonus Depreciation: have you completed cost segregation studies on any properties in your portfolio? If not, time is of the essence: bonus depreciation is 100% for 2022, but in 2023, it will start dropping by 20% a year until being phased out entirely. 
  • Short Term Rentals: the explosive growth of platforms like Airbnb and VRBO has ushered in an exciting new opportunity for real estate investors: operating short-term rental properties. Interested in learning more? Check out our Guide to Short Term Rentals for a deep dive into this opportunity.

In addition to gaining exposure to new strategies that can accelerate the growth of your portfolio, partnering with a real estate accounting firm can also help you make more connections in the industry. This can make a huge difference in your portfolio strategy. 

Imagine if your outsourced real estate accountant could introduce you to a new lender who specializes in financing the type of properties you invest in––that one connection could help you massively accelerate your acquisition pipeline.  

Tax Smart InvestorsTM, from Hall CPA, is an affordable subscription service that gives real estate investors access to weekly newsletters, content archives, and regular virtual events that share reliable real estate tax advice at a fraction of the cost of one-to-one tax planning. Subscribe today to join an exclusive community of ambitious real estate investors

Outsourced Accounting Gives You More Time to Focus on What Matters

Outsourced Accounting Gives You More Time to Focus on What Matters

Regardless of whether you’re a real estate professional or are just starting out investing on the side, it’s probably the case that the last thing you want to be doing is spending time in Quickbooks managing your own bookkeeping. Tasks like this are low-value and take your focus away from more important tasks that can drive your portfolio forward. 

If you’re serious about real estate investing, you’ll quickly discover you need to elevate your own role to a more strategic level and leave the day-to-day operations to someone else. Once you own a few properties, your time is better spent elsewhere than on accounting tasks: whether that’s sourcing new acquisitions, planning renovations, or simply enjoying the spoils of your hard work and spending time with your friends and family. 

The Drawbacks of Outsourced Accounting

The Drawbacks of Outsourced Accounting

We’re passionate advocates of outsourcing your real estate accounting needs. But as with any business decision, it’s true that there are some drawbacks you should consider before signing a contract with a new accounting partner. With the right approach, many of these drawbacks can be mitigated, but at the same time, it’s true that outsourced accounting isn’t the right fit for every investor. 

Let’s explore some of the disadvantages of outsourced real estate accounting. 

Less Control

When you outsource any element of your business, you have to accept that you will have to hand over some level of control to the organization you outsource to. Accounting is no different. 

When you work with an outsourced accounting service, you can’t just walk down the hall to your accountant’s desk to ask a question about an anomaly you’ve noticed in a report. Instead, you’ll have to pick up the phone or send an email, meaning it’s not quite so easy to get a quick answer to any questions you have. 

However, with the digital accounting software used today, you’ll still have full access to your financial records at any time. Good outsourced accounting firms communicate proactively and share monthly financials for all your properties. Provided you choose the right outsourced accounting partner and align on expectations for your relationship, you shouldn’t ever have to feel you’re not in control of your business. 

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Requires Familiarity with Accounting Technology

These days, outsourced accounting all happens online. If you’re comfortable using cloud-based software platforms and know your way around a Quickbooks account, this shouldn’t be a problem. 

However, if you’re the type of person who prefers to do things the traditional way, there might be a learning curve when you start outsourcing your accounting needs. This is especially true if you outsource to a virtual CPA firm that does everything online. 

Demands an Organized Business Environment

If you’re considering outsourcing your accounting needs, it’s best if your financial infrastructure is at least somewhat organized. If you’re in the process of doing a lot of construction or renovations and have a lot of expenses, you should have some kind of system to track them. You don’t need anything too complicated, a simple Excel spreadsheet is a good starting point. 

You also need the ability to digitally share invoices, receipts, and other important documents with your accounting team. If you want your accounting team to be successful you have to provide them with all the financial documentation you have available. 

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What To Look for in an Outsourced Accounting Provider

What To Look for in an Outsourced Accounting Provider

Not all outsourced accounting firms are created equal, and finding the right partner is key to your success. A sub-par accounting firm will charge you a monthly retainer and offer little in return, simply performing routine bookkeeping tasks that could be mostly automated. 

You won’t gain any exposure to real estate best practices or advanced tax strategies, and it’s unlikely you’ll be alerted to new opportunities in your portfolio. The end result of all this is you leaving money on the table, and that’s something no real estate investor wants. 

By contrast, choosing a well-qualified outsourced real estate accountant has the potential to dramatically improve your real estate business. But how can you tell if an outsourced accounting service is any good or not? Here are a few factors to keep in mind as you assess potential partners. 

Industry Specialization

When you hire a broker to help you buy or sell a property, you hire a real estate broker––not an insurance broker or a business broker. Why then, when you’re hiring an accountant, would you hire an accountant who isn’t a real estate accountant?

There’s no shortage of CPA firms out there. In fact, there are probably several in your town. However, the vast majority of these firms don’t have any sort of real estate expertise. If you work with them, you might be just one of a few clients they have that’s in the real estate industry. 

By working with a specialist, you get access to CPAs who know the real estate tax code inside and out. They’ll help you build a financial infrastructure that’s tailored to the needs of your real estate portfolio and can help you implement highly-specialized real estate tax strategies that could save you tens of thousands of dollars. 

As you evaluate potential partners, be sure to ask about their experience working with clients in similar situations to you. At Hall CPA, we only work with clients in the real estate industry. Our accountants are well-versed in the needs of real estate investors and have a lengthy track record of delivering successful outcomes. In fact, many of our team members are real estate investors themselves. 

Case Studies and Testimonials

It’s easy to find an accounting firm that talks a big game, but what’s most important is finding one with the skills and experience to back up the marketing bluster. One way for you to ascertain the strength of any professional service provider is to look at their reviews and client testimonials. 

If the outsourced accounting firm is doing a good job, they should have evidence to back that up. Prioritize firms that provide case studies with tangible numbers that summarize the level of value they have been able to provide to their clients. Ask around local real estate investor groups to find outsourced accounting firms that other professionals are happy with. 

An Approachable Team

When you outsource your accounting processes, you’re placing a lot of trust in your new partner. With this in mind, it’s key you find a partner you can trust. 

It’s important that you feel you’re able to approach your new accounting partner with any questions. When you reach out to them, they should be happy to set up a time to hop on a phone call or a quick Zoom meeting. Your aim should be to find a firm that prioritizes client experience. In our experience, it’s the small things that matter most to clients, like answering your emails within a couple of days, not weeks later.

Additional Value

The best outsourced accounting firms will provide value over and above the terms of your outsourced accounting agreement. 

At Hall CPA, we invest heavily in creating additional value for our clients. We host a podcast with some of the sharpest minds in real estate, regularly produce in-depth guides on advanced real estate investment concepts, and host an annual virtual conference. We also run a Facebook Group exclusively for real estate investors to share new ideas and learn from each other. 

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How to Start Outsourcing Your Accounting

How to Start Outsourcing Your Accounting

If you’re ready to start exploring outsourcing your real estate accounting needs, you’ve come to the right place. At Hall CPA, our real estate accounting team will partner with you to build the accounting infrastructure you need to easily monitor cash flow, understand portfolio performance, and save countless hours on bookkeeping. 

When you start working with us, we’ll kick things off with a kick-off call where you can meet your personal advisor to discuss your portfolio, align on expectations, and discuss any initial questions. Then, our team will then get to work implementing a Quickbooks Online system that’s set up to handle the bespoke needs of your portfolio. 

After your new accounting system has been implemented, you can choose whether you’d like to manage your own accounts or completely outsource monthly bookkeeping through our full-cycle program. In addition to that, our accounting advisors are available on an as-needed basis to answer any questions and provide you with tax advice. 

Interested in learning more? Request a consultation today

★★★★★

Hall CPA PLLC, real estate CPAs and advisors, helped me save $37,818 on taxes by recommending and assisting with a cost segregation study. With strategic multifamily rehab and the $2,500 de minimus safe harbor plus cost segregation, taxes on my real estate have been non-existent for a few years (and that includes offsetting large capital gains from the sale of property).

Mike Dymski - Business Owner