By George Dube & Peter Cuttini
The REIN Awards are a fantastic way to celebrate excellence; they are also a time to learn from people who have gotten it right. We were thrilled this year to see so many of our clients walking across the stage as award winners. This got us thinking about what our “winning” clients do in the areas of tax and accounting. What we found is that they have a foundation of five key strategies.
1. The successful real estate investor works with qualified advisors, who help them locate where they are today and where they want to be
Working with qualified advisors who personally invest in real estate is key. Successful real estate investors are focused on building relationships with the right people, as opposed to merely filing their tax returns once a year. The investors are forward-looking, and so are their advisors. One of our big questions when people start working with us is “What are your short-, medium- and long-term goals?” Long-term is not 5 years; it’s 25 years and frequently intergenerational. Successful investors have a vision, and we want to help them achieve it.
But what is a qualified advisor? For accounting, taxes, and bookkeeping, these are very specific skills.
- Bookkeeper: Qualified real estate bookkeepers are like gold;they ensure that the daily income and expenses of real estate investments are recorded accurately and in a timely manner so that the investor can see up-to-date reports and has clean books, allowing them to make decisions with good data.
- Accountant: Accountants—or,more realistically, your accounting team—ensure that your tax returns and financial statements are completed. But they should also be looking for what isn’t there, and helping you monitor how the business and investment activities are performing.
- Tax accountant: Tax is another areaof accounting that focuses on items like corporate structure(in part a function of portfolio makeup) and estate planning—and more. Tax accountants work closely with both you and the accounting team, often behind the scenes.
- Specialists: GST/HST is just one example of a specialty area that is critical to real estate investors. Thousands of dollars can be reclaimed, or lost, depending on how GST/HST issues are handled. Successful investors know that this kind of subspecialty knowledge is golden.
2. The successful real estate investor engages in dialogue, planning, and monitoring with their accountants during the year, as opposed to once a year
We are often asked, “How many times a year should I talk to you?” The answer is “As many times as you need to.” We want to provide guidance and steer you clear of tax and accounting roadblocks, but we can do that only if you’re talking with us regularly. Our most successful clients speak to us and other advisors on their real estate team—for instance, legal, insurance, and mortgage professionals—on a regular basis. The number of times depends on the stage of their business—are they in a growth, maintenance, or divestment phase? By asking questions and letting us know your plans, we can provide the best advice and be proactive for you.3. The successful real estate investor creates a scalable system that is able to grow with them
Award-winning real estate investors set themselves up for success. They work with us on their structure to ensure it is going to be workable today and will also grow with them to reach their near-term and stretch goals. This doesn’t mean that they have a fancy structure with corporations, trusts, and so on right at the beginning. They know they can start out small and then scale up along the way. But they have invested time and money in a system that can grow. With a strong foundation, they can make renovations and additions as they go—and have a functional and tax-efficient structure that protects their assets and saves them money.
The same theory applies to their bookkeeping systems. Implementing a system when you have a few properties that can scale to twenty, forty, or a hundred as you grow makes good sense. Most successful investors know their numbers and can access them quickly.4. The successful real estate investor deals with today’s—and tomorrow’s—tax issues and opportunities
Successful real estate investors are forward-thinking not just about their structure and their goals but also in their openness to taking advantage of tax opportunities. They avoid “mickey mouse” deductions or savings that can get them into trouble, in favour of ensuring, with the help of their advisors, that their overall picture provides them with the best tax-saving opportunities. For example, maybe they can get a slightly cheaper mortgage rate by owning a property personally, but after talking to us, they know that they’ll be throwing away many thousands of dollars in future tax savings that they could have achieved by owning the real estate investment in a corporation.
5. The successful real estate investor treats investors’ money even better than if it were their own
Many of the most successful investors we see are using other people’s money to achieve their goals. However, they don’t treat it as other people’s money. They treat it as well as or better than they would their own. They avoid the cheap advice, and they set themselves up correctly from an accounting and tax—as well as a legal, insurance, and financing—standpoint. They know that cheap usually equals expensive in the complex world of tax planning. And this means their investors lose out.
They are also strict about bookkeeping when it comes to other people’s money. We have seen too many well-meaning real estate investors running joint ventures with poor bookkeeping systems. In the end, no one knows whose money is whose and who is owed what. Instead of winning awards, this typically means losing lawsuits. The most successful real estate investors are providing regular reporting to their investors and can easily demonstrate the value they are providing through an up-to-date and well-maintained bookkeeping system.