Author Topic: CPA for rental LLC  (Read 2643 times)

zephyr911

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CPA for rental LLC
« on: February 09, 2016, 02:58:34 PM »
Hi all,

I just completed my second (and first full year) tax return (1065/8825/4562/Sch K-1s) for my three-member LLC, wherein I hold about half my real estate, and within which all new investment is happening. The partnership is poised for rapid growth (currently negotiating purchase of a 5-pk and probably buying more later this year), we're planning on professional property management in advance for all new buys, and are starting to talk about when to outsource the accounting.

I'm a moderately experienced tax preparer, and I've done OK with these first 2 years, but I'm concerned about the time burden (I have a FT and 2 other PT jobs), as well as the more complex reporting requirements that come with growth as we exceed various asset and revenue thresholds, etc. I want someone to eventually take over the accounting and tax filing to the extent that all we have to do is plan and execute new buys, and later, collect income.

SO:

For anyone who performs or procures these kinds of services, what should I look for and what should I expect? Will a typical CPA need a detailed handoff? Prior year returns? Bank statements? What will they want going forward? How hands-on should we expect to be? Anything else I should know?

Bourbon

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Re: CPA for rental LLC
« Reply #1 on: February 09, 2016, 03:06:15 PM »
Interested in the response as I am in a similar position in regards to time and have my eye out for a jump to Multi, currently holding 3 SFH.

zephyr911

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Re: CPA for rental LLC
« Reply #2 on: February 09, 2016, 04:20:17 PM »
We currently have 2 duplexes in the partnership, in addition to my 2 singly held SFH (previous residences). Currently looking to buy 2 SFH and 3 duplexes in one closing. Props all stay with the seller's property management company, and the deal includes accounting for rent, repairs, and commissions, or I'd probably be tagging out already.
As is, I let the other 2 know that I plan to spend this year preparing for a transition and have at least an initial consult in early 2017. One is a remote/silent partner and the other, who lives locally, has stepped up to manage expense tracking, which was a big help this time around, but I'm still the only one with a clue on taxes and I don't see it as a long-term occupation. Plus, I think 3 years pro bono is enough. ;)

jwright

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Re: CPA for rental LLC
« Reply #3 on: February 11, 2016, 08:43:39 AM »
I would assume a professional property management company handles the bookkeeping throughout the year.  I only own commercial properties, but our property managers track income and expenses, perform bank reconciliations, and then provide monthly reports.   I use those year end reports to prepare the tax return.  (I'm a CPA). 

The time intensive portion should be handled as part of your management fee; then I would feel it was money well spent to let the CPA do the return.   The bulk of the time (for bookkeeping) shouldn't be billed at the CPA rate.

zephyr911

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Re: CPA for rental LLC
« Reply #4 on: February 11, 2016, 09:51:39 AM »
I would assume a professional property management company handles the bookkeeping throughout the year.  I only own commercial properties, but our property managers track income and expenses, perform bank reconciliations, and then provide monthly reports.   I use those year end reports to prepare the tax return.  (I'm a CPA). 

The time intensive portion should be handled as part of your management fee; then I would feel it was money well spent to let the CPA do the return.   The bulk of the time (for bookkeeping) shouldn't be billed at the CPA rate.
This makes a lot of sense and I will keep it in mind.
Accounting for just two self-managed duplexes last year was a pain, but it was self-inflicted and we learned enough to avoid a repeat.
Our upcoming purchases will be managed by their existing PM company, including bookkeeping. Anything else we buy will be covered similarly from day 1, and I am pushing to move at least one current property over to a PM as well.
What is a reasonable CPA rate for the part of this that they would actually be doing? And how much time are we talking? Currently we just have a 1065, a 4562, an 8825, and 3 K-1s, but by the time I hand it off I picture 10-15 properties, over $1M in LLC assets, partners' basis accounting, etc.
Assuming all property is eventually under a PM, and I'm FIREd 2,000 miles away, what would they need from me to run everything?

jwright

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Re: CPA for rental LLC
« Reply #5 on: February 12, 2016, 09:24:46 AM »
I would assume a professional property management company handles the bookkeeping throughout the year.  I only own commercial properties, but our property managers track income and expenses, perform bank reconciliations, and then provide monthly reports.   I use those year end reports to prepare the tax return.  (I'm a CPA). 

The time intensive portion should be handled as part of your management fee; then I would feel it was money well spent to let the CPA do the return.   The bulk of the time (for bookkeeping) shouldn't be billed at the CPA rate.
This makes a lot of sense and I will keep it in mind.
Accounting for just two self-managed duplexes last year was a pain, but it was self-inflicted and we learned enough to avoid a repeat.
Our upcoming purchases will be managed by their existing PM company, including bookkeeping. Anything else we buy will be covered similarly from day 1, and I am pushing to move at least one current property over to a PM as well.
What is a reasonable CPA rate for the part of this that they would actually be doing? And how much time are we talking? Currently we just have a 1065, a 4562, an 8825, and 3 K-1s, but by the time I hand it off I picture 10-15 properties, over $1M in LLC assets, partners' basis accounting, etc.
Assuming all property is eventually under a PM, and I'm FIREd 2,000 miles away, what would they need from me to run everything?

The rate depends on your location and what kind of firm you go with.  In my area, many are trying to move away from an hourly rate and bill a flat fee.  I used to work for a top 15 firm and we wouldn't touch anything for under $1,000; typical 1065 without any issues would probably be $1,200.  I recently heard from a client that a medium-sized firm in our town (think 10 CPAs) charged a minimum $750 for business returns.  As a reaction to that, you can find sole proprietors, two-man shops, or even Enrolled Agents who are willing to do it for less and/or charge a lower hourly rate.  In my area for the 2 duplex return, maybe $500?  Once you get into the 10-15 range I think you are hard pressed to stay under $1,000.  But if you can buy 10-15 properties and only yield $1M in assets, you are in a lower cost of living than I am.

Also, if you are buying/selling, 1031 exchange, admitting new partners, have partners withdrawing, tax credits, property in multiple states etc you are looking at more time and money, but that's specialty knowledge that some tax preparers can't provide. 

Assuming your PM can perform accurate bookkeeping (which is a big assumption, I've found), you need to provide a balance sheet and income statement at year end to your CPA.  They will want supporting documents - bank rec, closing documents for purchase or sale, loan balance verification; most of which would be available in the report provided by the PM. 

jwright

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Re: CPA for rental LLC
« Reply #6 on: February 12, 2016, 09:27:23 AM »
I will also say in regards to cost - the first year the CPA prepares your return should be the most expensive.  They have to take the time to get to know you and your business; data entry for all the properties and partners, etc.

The subsequent years, they roll the return forward, just like TurboTax and don't have to repeat the data entry.  This saves time.

A lot of firms will charge the same or add a cost of living increase to the first year bill for the second year.  They try to hide the efficiency in a flat fee.  You should be able to negotiate on this as well.

zephyr911

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Re: CPA for rental LLC
« Reply #7 on: February 12, 2016, 10:51:21 AM »
Thank you so much for the info, jwright.

Yes, we are in a cheap town, and dog bless it! We're buying five for $235K (total 7 / $405K) though we may focus on bigger multifamiles as we grow. I found that two of my friends have CPA recommendations, so I will start with them and see how they compare to your data points.

DIY made sense with a small loss on $4k in revenue for our first partial year, and minimal cash flow on $20K in rent last year, but we're looking at a profitable 50K gross this year and continued increases as we reinvest everything, so the cost gets much easier to justify, and even $1K or more will be reasonable by the time we do this.

We plan on being fairly hands-on with the PM at first to ensure our expectations match theirs. This seller owns both a huge rental portfolio and a separate PM corp, which until now has only managed his own properties, making this their first experience with outside owners. So, while they appear competent and have achieved wonderful economies of scale on maintenance (our primary motive for using them) there will be some first-time stuff in terms of cost breakouts and we'll have to watch closely.

Again, the information is immensely appreciated and I think it will be very helpful.

NoNonsenseLandlord

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Re: CPA for rental LLC
« Reply #8 on: February 13, 2016, 08:17:05 AM »
I use Quicken and Turbotax.  It's not that difficult.  8 properties, 25 renters.  All properties are held in a separate LLC.

I wish I had your kind of money.


zephyr911

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Re: CPA for rental LLC
« Reply #9 on: February 13, 2016, 10:06:36 PM »
Ha! You do, though. Keep in mind, I'm just a 1/3 partner here. That affects the dynamics a lot.