The real estate industry’s dynamic landscape and its increasingly intricate accounting standards, place real estate organizations in a pivotal predicament: sustaining a flexible workforce capable of adapting to evolving business demands.
This challenge is particularly evident within a company's accounting and finance department. Real estate enterprises require robust accounting teams that can generate prompt, precise, and reliable financial information to keep pace with business needs, tax obligations, and complex entity structuring.
Confronted with dwindling returns and escalating expenses, more real estate organizations are turning to outsourced accounting solutions to supplement their internal resources. Below is a look at the challenges triggering this business model shift and how outsourcing accounting services can benefit your real estate organization.
Real Estate Staffing Challenges Overview
Sourcing accounting staff with a deep understanding of the real estate industry is a common hiring pain point. This expertise is hard to find, causing real estate organizations to employ accounting staff who lack a strong understanding of industry nuances.
Relying on less than qualified teams creates the following challenges for accounting departments:
- Uncleared deliverable and request backlogs
- Limited specialized project or transaction capabilities
- Lack of trust in the financial statements and delayed report production
- Restricted cross training opportunities
- Hindered technology, efficiency, and process development and implementation
An outsourced arrangement—whether in whole or in part—can help your organization overcome these challenges efficiently and effectively.
Benefits of Outsourced Accounting
Filling the talent gap with a real estate-specific, outsourced accounting solution delivers a host of business benefits, such as:
- Access sector-savvy professionals. These experienced accountants can bring industry knowledge, experience with accounting standards and financial reporting, and familiarity with relevant industry-specific accounting systems.
- Bridge skills gap. Outsourced accounting resources can help upskill your staff with valuable industry insights and best practices elevating team knowledge without workflow disruption.
- Uncover potential problems and develop solutions. As well as their comprehensive real estate expertise, outsourced accounting professionals bring an outside perspective to your landscape that help them spot potential problems your internal staff may have missed and collaborate with you to devise solutions.
Other areas that may also benefit include:
Daily Workflow
- Reduce accounting errors
- Increase workflow efficiencies
- Improve reporting production
Operations
- Scalable resource pool
- Flexible staffing capabilities
- Improved risk management
Management
- Improved investor relations
- Enhanced compliance and regulation management
- Insightful financial analysis
Solutions for Real Estate-Specific Accounting Challenges
Beyond day-to-day accounting needs, experienced, real estate outsourced accounting resources can bring clarity, insights, and efficiencies to complex accounting challenges unique to the real estate industry.
Capital Tracking
Accurate capital tracking is a fundamental element of real estate accounting that demands a deep understanding of property investments and their financial implications.
Outsourced accounting professionals who focus on real estate understand the intricacies of investor basis allocations and can help you navigate this critical factor in tax planning, performance tracking and financial reporting for real estate assets.
These professionals also understand the importance of keeping investor capital accounts reconciled and can help with proper accounting for capital calls and distributions.
Fixed Asset Allocations
Maximizing tax benefits and increasing financial accuracy hinges on properly allocating fixed assets, a skill set that requires industry-specific knowledge.
Moreover, a deep understanding of current technologies is needed to optimize processes and procedures, essential contributors to maintaining your competitive edge.
Outsourced accounting teams with real estate experience can help streamline your fixed asset allocation approaches and point you towards software and automation tools that can help enhance your existing operations.
Ultimately, understanding the complexity and nuances of the real estate industry is paramount, as it directly impacts financial decisions and regulatory compliance.
Transactions & Debt Restructuring
Successful property acquisitions rely on precise financial evaluations. An experienced real estate outsourced accounting team can provide accurate calculations and diligent recording of financial data that allow you to evaluate options thoroughly.
Transactions can also increase your internal accounting team’s workload, and if not handled properly, create long lasting disruptions. Outsourced accounting expertise can supplement internal teams during heavy transaction periods supporting daily operational needs and reducing transactions’ long-term impact.
Experienced outsourced real estate accountants can conduct detailed escrow closing statement analyses, collaborate with auditors, and reconcile equity records to operating agreements to assist in compliance with third-party requirements.
Additionally, real estate outsourced accounting teams can contribute to debt restructuring projects by facilitating the comprehensive record-keeping essential to accurate decision-making.
Property-Level Accounting
Accurate financial reporting is vital to effective property management. Outsourced resources can rectify reporting inaccuracies and maintain efficient and accurate reporting in accordance with the applicable standards.
They can also analyze and assist in financial reporting for your organization’s capitalization policies, derivatives related to interest rate swaps and caps, intangible assets, and depreciation tracking.
Tax Obligations
Accurate and timely financial reporting is crucial to meeting tax obligations. Many organizations struggle to deliver needed documents to their tax preparers in a timely manner.
Other time-based activities, like issuing K-1s, are labor intensive due to the complex entity structuring and transactions that result in a high volume of entries.
Outsourced resources work directly with you to make meeting tax obligations as seamless as possible. From helping you vet your tax opportunities to assessing structuring options, outsourced real estate accountants can help you make informed tax decisions.
Section 1031 Exchanges
Section 1031 exchanges employ a compressed time frame for relinquishment and identification of replacement properties. In the real estate market’s ever-changing conditions, timing is critical to close these complex transactions.
Real estate-specific outsourced accounting teams can help your internal team meet these strict deadlines and establish proper accounting processes and systems. They can also help you plan and model proposed scenarios before entering into an exchange transaction.
Joint Venture Requirements
The shifting economy has many organizations turning to joint venture arrangements to supplement capital needs. Parties within a joint venture are often partnering with an institutional investor. While these business arrangements can give participants more lucrative opportunities in terms of projects and funding, they include strict accounting requirements and complex reporting needs.
Experienced real estate outsourced accounting professionals can help organizations navigate joint venture accounting needs including:
- GAAP accounting analysis and reporting
- Fair value market adjustments
- Property level audits
- Tight reporting deadlines
Overall, outsourcing accounting and finance functions in the real estate industry can lead to improved financial management, reduced operational burdens, enhanced decision-making, and increased competitiveness.
However, it's important to carefully evaluate potential outsourcing partners and tailor the solution to your organization’s specific needs and goals.
Solutions Outsourcing Can Provide to Different Organization Types
Experienced real estate outsourced accounting resources can be beneficial to a wide array of real estate organizations, as it allows them to streamline their financial processes, reduce costs, and focus on their core business activities.
Here are examples of how outsourced accounting can help support the specific challenges of different types of real estate organizations.
Real Estate Investment Firms
Investment firms that deal with real estate assets often have complex financial transactions involving multiple properties, partnerships, and investors. Outsourced accounting can help you comply with your regulatory requirements and provide accurate financial reporting for investors.
Real Estate Developers
Developers involved in construction and development projects need to manage project budgets, expenses, and cash flows. Outsourcing accounting can help track costs as well as monitor project progress and utilization of financial resources.
Real Estate Investment Trusts (REITs)
Outsourcing accounting can help manage the intricate financial transactions and compliance associated with REITs and the specific regulations and reporting requirements to which they’re subject.
Property Owners and Landlords
Individual property owners and landlords with multiple rental properties can benefit from outsourced accounting to manage rental income, expenses, and tax obligations efficiently.
Commercial Real Estate Companies
Companies involved in commercial real estate, such as retail centers, office spaces, and industrial properties, often have complex financial structures. Outsourced accounting can help account for leases, process tenant billings, payment receipts, and property-related expenses.
Real Estate Syndications
Real estate syndicates pool funds from multiple investors to acquire and manage properties. Outsourced accounting can help investor relations by providing accurate and transparent financial reporting, process and track distributions and capital calls.
We’re Here to Help
To learn more how outsourced accounting solutions can benefit your real estate organization, connect with your Moss Adams professional for more information.
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