Simplifying Commercial Real Estate Accounting for Your Property

The Covid-19 pandemic will impact all aspects of our lives, including real estate. But it doesn’t mean things will stay that way. Historically, after a period of struggle, we usually see an improvement in both technological and economic terms.

In real estate, proper bookkeeping establishes accurate records for the sales process. Commercial real estate bookkeeping can be especially challenging. To prepare your property for the possible influx of money in the future, you need to have your finances right. Here are just some of the things you need to pay attention to when it comes to commercial real estate bookkeeping.

Defining the Purpose Of Your Property

Defining your property goals is the place to start. By that, we mean that you need to tell your potential commercial real estate team how you plan to operate your property. Are you buying properties and developing them for future sales, or do you plan on keeping your properties, renting them to tenants, and enjoying future cash flows?

Understand the What the Potential Problems Are

The real estate industry is among the top three largest sectors of both the US and world economies. The regulations of accounting are designed to help accountants make the most out of real estate’s contribution to GDP, encourage wealth creation and distribution through investments, and prevent a crisis like that caused by the world financial crisis. Some countries have stricter rules about transferring your ownership of property and identifying the source of funds. They also enforce tighter requirements for valuing real estate and calculating inheritance tax.

Key Accounts for Commercial Real Estate

Commercial real estate bookkeeping involves acquisitions, development, or renovation of buildings for eventual sale. Developers also use the balance sheet to track their projects. A company’s profit and loss account will be set once the property is either sold or ready for tenants.

Keep Your Data Easily Accessible and Safe

Both businesses and homeowners are sometimes selected by government officials for audit, and this can be an extremely stressful process. Government inspectors will probe all aspects of your accounts in great detail, looking for anything suspicious or out of the norm. They may ask you a lot of questions as well, which can result in increased operating costs.

Keeping your record accessible and safe can be difficult or near impossible if your records are stored on paper. It’s necessary to have all relevant information scanned in a secure location, for you and the tax office to access at any time needed.

Calculating Hard Costs and Soft Costs

Let’s discuss the differences between hard and soft costs.

A hard cost in commercial real estate accounting is an expense that must be paid directly to manufacture goods necessary for a project. Hard costs account for up to 80% of the construction cost, but they can also be higher on renovation projects.

Conversely, soft costs are a part of construction that aren’t specifically tied to physical production. They deal more with consultants and planning for the project. In most cases, soft costs are the pre-construction costs, and the majority of them are incurred before construction begins.

Retainage Payable and How it Works

Retainage Payable is the amount held back from a subcontractor at the end of each payment cycle. For every third-party vendor that requests payment, 10% of the money due to them for work performed goes into an account with their name on it, and they can only get access to this after the contractor checks in with them to verify the project has been completed.

Once a contract has been completed, a punch list will be approved by the client. If everything is up to code, then the payment for that contractor can be assessed and paid out to them after their contract work has been verified. Payments for each new subcontractor are tracked until their projects have all been approved by the client.

Fit Your Accounting Needs to Your Property

Many things can go wrong during the bookkeeping process, and some of them could end up costing you everything. This is why the right company should do the work for you. Laverty Chacón provides asset and property management, brokerage, and consulting services for commercial real estate properties of different types in Northern California. If you need any help with commercial real estate bookkeeping, feel free to contact us to schedule a meeting with one of our experts and get the help you need!

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