The real estate sector has faced significant uncertainty in recent years.
Fluctuating capital markets, shifts in working patterns that have impacted the values of commercial property, changing regulatory requirements, and the emergence of AI and smart technology, have all meant firms investing in real estate have had to rethink business as usual.
Today, real estate investments need constant attention, but maintaining clear visibility can be a challenge for accountants and bookkeepers.
Information needs to be consolidated across multiple systems, funds, and asset classes—and may involve multiple geographies and currencies.
Compounding matters, firms often need to employ complex legal structures to protect client interests.
It’s no longer feasible to expend the time and energy on manual bookkeeping methods.
These manual methods, which rely on complex spreadsheets, are time consuming and can be prone to errors.
The best accounting and bookkeeping methods for real estate are automated, integrated, and boost business efficiency.
What is real estate investment accounting and bookkeeping?
Real estate investment accounting involves more than just tracking property transactions.
Firms rely on this function to monitor income, expenses, and profitability across diversified portfolios.
In addition, real estate investment firms may have different lines of business running in parallel, such as legacy property management combined with new asset acquisition and property development.
Establishing a solid accounting foundation is a crucial part both of maintaining the financial health of a real estate investment firm and ensuring compliance with the relevant regulations.
Accurate accounting enables firms to assess their profitability, liquidity, and solvency at any given time.
It mitigates risks, boosts investor confidence, and elevates strategic planning.
But to achieve that, accountants and bookkeepers need to track the latest financial and operational performance of the firm, evaluate how it’s progressing against its key performance indicators (KPIs), and be on top of the effect of market fluctuations on a fund’s valuation.
In an ideal world, real estate investment accountants will have 24/7 access to business-critical data.
They’d also have the ability to drill down into the relevant insights and reports via a user-friendly dashboard.
Streamlining accountancy and bookkeeping back-office functions allows efficiency to increase and business intelligence to significantly improve, as finance teams no longer waste time on manual data analysis.
What should you include in real estate accounting?
Accountants need to build up a full picture of a company’s financial health, using a number of real-time metrics.
These numbers enable accountants to make comparisons between different time periods, geographies, and asset classes, and help CFOs and other leaders to analyze emerging trends and make smarter decisions for the future.
Recommended metrics include:
Revenue by residential or commercial property
Accountants should break down revenue figures per commercial property, tracking management fees, maintenance, service fees, and total commercial revenue.
Value of a specific real estate fund over time
This could be broken down into categories such as location, asset type (commercial vs residential), and size.
Value of whole portfolio over time
Include subcategories such as generated revenue (with quarter-on-quarter, and year-on-year comparisons), net income (year-to-date), notes payable, and assets under management (AUM).
Overall asset weighting
This could be broken out into categories—think about measuring the weighting of raw land versus a golf course, or even just commercial versus residential.
Some real estate funds will emphasize various assets differently.
Meaning that the performance of some categories carries more weight than others.
Core accounting processes
As with any sector, income and expense tracking should be covered.
Real estate firms will also want to track dispositions and acquisitions as they take place.
Key takeaways for accountants and bookkeepers at real estate investment firms
A clear overview of a real estate investment firm’s multi-entity portfolio is needed to truly understand business performance.
Small changes in the broader market can hugely affect the portfolio value and need to be captured in real time.
Accountants and bookkeepers can’t afford the time it takes to manually juggle complex entity structures and disparate data sources.
With the right technology, accounting and bookkeeping professionals will be able to:
- consolidate entries,
- streamline financial planning processes,
- improve business intelligence,
- and better serve investors with timely information.
With the right data at their fingertips, CFOs and other business leaders will be able to make more insightful decisions that accelerate portfolio performance and long-term growth.
FAQs
What is real estate accounting?
Real estate accounting monitors income, expenses, and profitability across a real estate portfolio that may be comprised of residential or commercial properties.
The accountants within the firm oversee the financial performance of activities such as property management and development as well as asset acquisition.
How does accounting and bookkeeping for real estate differ?
Real estate accountants and bookkeepers often have multi-entity portfolios, across multiple locations and currencies.
They also have to track dispositions and acquisitions as they take place and take complex legal structures into account.
What best practice methods should real estate accountants and bookkeepers follow?
Accountants and bookkeepers need to consider various metrics such as revenue by commercial property, value of the whole portfolio over time, value of specific funds, and overall asset weighting, as well as core accounting processes such as income and expenses.
With the right technology, they can move away from time consuming, manual processes that are prone to error, and begin to boost productivity and elevate business strategy decisions with real-time data.
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