Does Your Real Estate Accounting System Have Every Square Foot Covered?
If you’ve been involved with real estate investing for any length of time, you know it’s a complicated business that requires a focus on details. You have to be in the right place at the right time, and you have to be ready to make a move. That requires a good grasp on the numbers and the ability to get those numbers quickly to your employees, your investors, and of course, yourself.
How do you do that? Put the right real estate accounting system in place.
A solid accounting solution for real estate investing can help a company traverse the complex and intricate world of real estate investments, and ultimately, grow to the next level.
(If you’re looking for a longer explanation of why real estate investment companies need a specialized accounting solution, read the post, “What is Real Estate Investment Accounting?”)
So now that you have a good grasp on why it’s important, what should you look for in a real estate investment accounting solution?
“There are three things an enterprise accounting solution should have,” says Greg Fuhrman, Product Manager for Enterprise Accounting Solutions at RealPage Inc. “[It needs] corporate accounting, investment accounting and advanced consolidations. Few companies in this corner of the market have true accounting solutions that include all three components. They claim they do, but they’re either workarounds or incomplete solutions.”
Fuhrman says most real estate accounting software providers don’t have a true corporate accounting package. Either they’re missing a major module like Accounts Payable or they require clients to shoehorn their corporate accounting into a property management accounting solution.
“And that’s usually a poor fit,” he adds.
Another important component that many vendors and providers are missing is partnership accounting and advanced consolidations. “Investment or partnership accounting—accounting that automates the initiation and tracking of capital activity—is a crucial part of any commercial accounting package for real estate,” says Fuhrman. “It helps real estate investment firms manage their complex ownership structures and multiple sets of books.”
Then there’s investment accounting. For investment firms, Fuhrman asserts, it’s arguably the single most important thing they do. “Being able to respond quickly to investor requests is critical for an investment firm. If they can’t track their returns and present them to investors and [internal] stakeholders quickly and completely, they might lose some important third-party capital,” he says.
But what makes his accounting software so special?
Fuhrman says RealPage’s the secret sauce for enterprise accounting software is so simple that it’s there for everyone to see. “TCO. Total Cost of ownership is our biggest benefit. We keep CAPEX and OPEX low, and our clients appreciate that approach. No one really wants to spend the time to implement advanced consolidations and investment accounting, even though they can easily see the benefit,” he shares. “That’s why RealPage focuses on making a product that’s inexpensive to own and quick to implement. And it doesn’t interrupt day-to-day business.”
The reality of the industry is that new and growing firms have to fight to make money. An accounting system that costs hundreds of thousands and takes more than a year to implement can put a firm in the red, or worse, bury it. Regardless of that, investors still want to feel comfortable that your firm’s accounting process is legitimate−that you have a back office infrastructure fully supporting your business. That concern is definitely puts an enterprise accounting system on the list of must-haves.
In spite of the cost concern these real estate investment firms have, Greg believes that some vendors still try to add a lot of unnecessary functionality without really thinking or asking about what they need.
“RealPage prides itself in helping our clients grow. And that takes a scalable platform,” he says. “Most mid-market firms add more employees instead of implementing an automated enterprise accounting solution. And that can be more expensive, especially in the long run.”
RealPage’s automation in these key areas gives them the lower TCO for both annual operating expenditures and initial implementation. It could also result in a slower hiring plan, especially compared to those firms that still rely on headcount to do the work.
“How do you know that you have the right enterprise accounting solution? Simple,” says Fuhrman. “The right accounting software will help your investments grow, not your back office.”