Money Matters: The Importance of Accounting in Property Management
By 2025, the U.S. property management market is forecasted to reach $21.4 billion, with a compound annual growth rate (CAGR) of 7.3%. This comes as no surprise since there are more people than ever looking to breach the industry, which is driving the rapid digitization of commercial and residential property transactions and operations.
As property management becomes more competitive, so too does the demand for those with accounting expertise to keep real estate charts and books. Such is the demand for accountants in property management, as well as in all industries, that many educational establishments are now training accountants through remote courses. Online accounting degrees are just as valid as on-campus degrees and train accountants for the certified public accountant exam.
The good news for property managers is that this has resulted in an increasing pool of accountants to choose from, with many specializing in property accountancy.
Accounting doesn’t merely function as a compliance requirement, it also optimizes asset profitability, provides an analysis of profits and loss, and aids in handling expenditures. Property managers who want to stabilize their operations for their real estate businesses should employ professionals who have a strong accounting background, either through education or experience.
They should have skills in both financial and managerial accounting. This ensures your business can identify performance data and take into consideration the state of its financial health, the application of which in growth strategies can increase the profitability of your real estate assets.
This is why it’s important to understand how good accounting practice is vital in successful property management, and here are key reasons why:
Keeps You Updated on the Market
Accounting helps you conduct proper research to make informed decisions on investments. Specifically, proper bookkeeping— which is based on property tax updates— allows property managers to understand the costs of buying, renting, or investing in homes and apartment buildings in different locations or states.
Keeping tabs on any drastic changes to certain markets can also help property managers determine whether to provide lower interest rates or increase tenants’ rents. Likewise, market trends such as the demand for housing supply may also be influenced by property taxes. For example, a split-roll property tax system in California incentivized different developers to build properties for residential use.
Assigns an Estimated Value for Your Property
Assigning value to properties can be daunting especially since transactions are less frequent, with a long-term asset or assets group belonging under the same management for years. This is why accounting is crucial in making real estate valuations.
With real estate accounting, progress can easily be measured and applied to financing, investment analysis, property insurance, and taxation. Particularly, estimates of value can help calculate a benchmark price for the subject property. Property accountants employ the cost approach to estimate the value of properties that have been improved by one or more assets. This is ideal for separate estimates for the property or the land, taking depreciation into account.
Moreover, property accountants can prevent inaccurate valuation by following the proper regulations and keeping accurate records.
Enables You to Create Effective Business Strategies
Accounting can offer you a systemized way to track multiple account finances, and access credentials, and provide other proprietary information in the event where a property is required to transition to a new management company.
Beyond assisting in a smooth transition, accounting is also imperative in creating effective business strategies based on data like yearly growth rates or property performances to set goals for the company. Moreover, accountants can prevent issues with pending transactions, balances, or employee salaries, and plan a capital raise if you wish to expand your ventures.
Helps Maximize Your Business Revenue
In addition to financial management, accounting streamlines information on properties used to decrease expenses and maximize revenue. Managing properties entails numerous fees for marketing and advertising, maintenance and repair, and property taxes and insurance.
With accounting, you can easily employ affordable services for maintenance and repairs based on how it factors into your overall costs. You will also be able to conduct an evaluation of different interest rates on credit cards and mortgages, and help transfer high-rate accounts and balances to zero interest rates.
This can also help lessen confusion over assessing whether a long-term asset or group of assets has declined in value. In cases where there is a decline in value, property accountants can identify which cash flow is largely independent of the cash flow of other assets and liabilities. This makes it possible for property accountants to advise on rent increase, or warn against potentially harmful lease terminations.
Simply put, great property management accounting can give you the means to transform the recorded data into efficient strategies that will certainly maximize your real estate company’s growth and profitability.