Watch Out For These Habitual Real Estate Accounting Errors!

Accounting is a desideratum for real estate companies. Which conversely means that, when handled carelessly, it comes right back to bite you. Very hard. Funnily enough, it’s with the more quotidian tasks or basic measures that businesses trip over and land themselves in big trouble.

Here are 6 typical mistakes real estate folks make, along with some pointers to avoid them.

  1. CAM: Common Area Maintenance reimbursements can get quite complicated given their very nature. So the issues cropping-up usually tend to be:
  • Incorrect lease abstractions
  • Incorrect CAM set-ups
  • Missing out of certain expenses
  • Billbacks
  • Over billing or under billing

When there is an incorrect lease abstraction, there naturally will be discrepancies in billing amounts. For instance, utility amounts that might need to be excluded from one tenant’s bill might actually be included. This could mean significant amounts of money getting short-circuited, resulting in bad owner-tenant relationships.

You need to make sure the culled out lease abstraction is correct. This can be done with a proper analysis. The process entailed should be sturdy and dynamic. Review the clauses for controllable and non-controllable expenses. Once this set-up is checked, the details are lucid and straightforward; thereafter everything else will fall into place.

  1. Monthly Financials: Apart from the main cash entries, closing entries for non-cash transactions and the posting of periodic accruals need to be done. Failing this, the financial statements between two months or periods may not even be comparable.

The answer to this problem lies in itself. Non-cash transactions must be recorded. Planning, diligence, and timely work need to be enforced rigorously.

  1. Cash Management: Many make the mistake of relying on just bank statements to cut checks. However, these statements don’t necessarily account for checks that have been cut but not encashed.

It is smarter to prepare cash reports based on daily bank reconciliations and then use that to make decisions on cutting cheques on a day-to-day basis.

  1. Utility Payments: When it comes to utilities, like electricity, water, gas and sewage, payments must be done timely or the services will be disrupted. This in turn disrupts the tenants and their affairs. For instance, if the electricity bill isn’t paid on time they can get a disconnection notice. These basic utilities are everyday necessities and are acutely felt when made inaccessible.

To avoid such inconvenient situations, introduce automated payments. But first make sure the vendor set-up has been established correctly in the system.

  1. Updates of Changes in Static Data: There may be agreements, such as biannual rent increases, for which dates tend to be forgotten or missed. In such instances, either the increment isn’t carried out on time or the intimation isn’t conveyed to the tenant. Re-working the amounts to accommodate such changes takes a nimiety of additional man-days, not to mention the fresh costs incurred to do so.

That is why it is a peremptory requisite to have a robust system to make note of when the increment will set in, and a process to communicate this to the tenant.

  1. Late Fees: This can happen by default. Owing to incorrect accounting, clients can wrongly be slapped with a late fee. The reasons are many, and may include incorrect set-ups, accounting or charges. This begets sore relationships with the tenant and additionally costs a bomb to correct.

It is imperative that you have the late fee validated before generating it. The lease should be established properly and rates need to be captured accurately enough to be a reference at a later date.

Errors impact payment deadlines such as mortgages, fees to financers, statuary reports, investment reports and so forth, and the costs involved when it is missed or delayed are substantial. So let’s hope this blog has given you imperious pointers to keep such unnecessary costs and commotions at bay.

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