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7 Most Common Accounting Errors to Avoid in the Real Estate Industry

Real Estate Accounting Read time 3 min

To put it mildly, the real estate market is unpredictable and complex; throw in some shady accounting practices, and things get downright perplexing. It can ruin your company’s credibility as a legitimate real estate agency and cost you millions of dollars.

Many businesses make countless errors as they progress. The sum of these obvious flaws, however small they may seem individual, add up to a deeply flawed framework. Is there a way to keep accounting from becoming a major headache? If so, what symptoms should you watch for? The following are the most typical accounting blunders made by real estate companies. Continue reading to learn more.

Common Mistakes to Avoid in Real Estate Accounting

Improper Handling of Financial Records 

Loans are used in the real estate development industry to support building projects, but if the developer fails to keep accurate financial records, the loan may be canceled, halting or even stopping the work altogether. Tax returns, which validate a property’s cash flow, must be meticulously prepared to succeed in the real estate market. If you need a loan to grow your property portfolio, this aspect of record-keeping is crucial. Remember that the strength of the loan will be determined by your tax returns from the year before you apply for it. As you get ready to fund your project, you should try to keep costs down and enhance taxable income.

Inaccurately Categorized Data 

Mistakes are often made while dealing with the intricacies of data classification in real estate accounting. Determining whether an expense should be considered an investment or routine maintenance is a common source of ambiguity. This error could raise red flags, leading to an audit of your tax return, or sending the wrong impression about the nature of your capital expenditures. When planning for extensive improvements, it’s best to consult an expert to make sure everything is properly categorized, recorded, and taxed.

Funds Disbursed Early 

It is standard procedure to hold onto trust or escrow deposits until after the necessary paperwork has been signed and the keys have been transferred. Because the money is not deemed commission until the transaction is closed, brokerage companies can violate their governing body. If the commission amount is renegotiated shortly before the contract is finalized and the funds have already been distributed, the difference may need to be retrieved from the disbursed escrow money.

Separate Commissions Recording 

Keeping track of commissions in a manner that is distinct from the accounting process leads to duplicative reporting, a loss of transparency, and additional work for all parties involved. Merge commissions with the accounting process to explicitly identify how much is owed to agents when the sale check goes through, hence streamlining commission tracking and increasing clarity.

Not Keeping Personal and Business Finances Separate 

A real estate agent’s attitude to business might lead to mixed business and personal spending. Keeping your personal and corporate finances in two different places is prudent for your financial health, as it permits better-organized bookkeeping and more precise tax reporting. Keeping business and personal affairs separate is essential if a broker’s enterprise is kept in a distinct entity (such as a single-member LLC) to preserve the entity’s liability protection status.

Lack of qualified accounting staffers 

It is usually preferable to have a professional handle complex jobs like real estate accounting. Experts can help you decide on the best software for your real estate accounting needs and keep everything running smoothly. Underestimating what professionals know about what works and what doesn’t in business could be a tremendous mistake.

Taxes not filed in compliance with the rules 

Incorrect tax reporting can be disastrous for a corporation, making accurate property accounting crucial. Be sure to research the various tax-filing options accessible to you before deciding which method is right for you. Maintaining a property is easier if you stick to the same routine year after year. Filing taxes may be a daunting task, so it’s important to have a thorough plan and do your homework before diving in. 

Conclusion

If you need help keeping track of the financial aspects of your rental properties, look no further than Springbord, where you can consult with professionals that have a thorough grasp of the real estate industry. We ensure error-free invoicing, a streamlined payable cycle, and detailed reconciliation and management of all outstanding payments. To assist you in making informed business decisions, our software automatically gathers the data you need.

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Friday, 07 October 2022 / Published in Property Accounting, Real Estate
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Tagged under: commercial property management accounting, commercial real estate accounting, outsourcing property accounting services, property accounting services, property management accounting services, real estate accounting services, real estate property accounting

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