Our Top Tips for Finding a Vetting A Good CPA
In this episode, we continue our series of how to select and vet strong team members. This week we discuss the CPA. --- Transcript Emil: Hey everyone. Welcome back for another episode of The Remote Real Estate Investor. My name is Emil Shour and I am joined by my co hosts, Tom: Tom Schneider Michael: and Michael Albaum. Emil: And today we're going to be continuing this series we've been doing lately on building out your team. So how do you find and vet the different players on your quote unquote real estate investment team. In today's episode, we're going to be tackling the CPA, which stands for certified public accountant for anyone who's not familiar. So let's hop in. Theme Song Emil: All right, before we get into the meat of the episode, the meat and the potatoes, meat, potatoes, the salmon and, the salmon and couscous. Let's go with that. We have some people leaving us some awesome reviews I want to give a quick shout out to so recently real estate financial freedom wrote, “The show has the feel like we are sitting around a table talking shop about real estate, they do a good job catering to beginner but also go into depth into more complicated real estate subjects. If you are thinking of investing out of state, this is the podcast for you. This podcast makes real estate feel very approachable.” Emil: Thank you so much love the review, we'll try to give everyone a shout out if you leave us review was mentioned at the end of the episode. But please leave us reviews. We love them. And we'll give you a shout out in a future episode. Michael: Thank you so much. Emil: Alright guys. So we usually tackle three questions on each one of these episodes, which is when in the process? Should you look for this individual? How do you source them? And vetting questions to ask them to make sure you're choosing the right person? So let's start with the first one. When in the process of acquiring, let's call your first rental property, do you need to go out and find a CPA? What have you guys done Michael: Now. Now .ow now now Emil: All right, Mr. delay? Michael: I think that first question, it really depends. I chat with someone in the academy a few weeks ago who does their own taxes, they prepare their own returns anyhow, using, you know, TurboTax, whatever. And so they said, Yeah, I already understand how taxes work, I understand tax works. And so adding one rental property to the mix is not a big deal whatsoever. So they've been doing their own. So if that's you great, but if you don't prepare your own taxes, or you want to go hire a professional to do it, I think it can be really great to have that conversation as soon earlier in the year as possible. Because as we all know, taxes are due in April for the year prior. And you can't really do a whole lot of changes after the fact. And so chatting with a tax professional as you're getting started in owning real estate is going to set you up to have some really good habits and makes tax time so much easier for everybody involved. So I would say as soon as you're considering real estate, talk to a tax professional about how your personal situation might be affected by owning real estate, what some deductions look like and what your overall taxable basis might look like as a result of owning real estate and how that might change as if you previously didn't. So I don't think it's ever too early to start that conversation. Tom, what are your thoughts? Tom: Yeah, my thought is just kind of on the first piece of this is something that you could file your own taxes and talking to people in Academy, asking about the stuff. My advice is always, you know, it's worth paying that money for a professional, there are a lot of tax benefits with real estate, you get the three DS depreciation deferral and deduction. And you really want to squeeze as much juice as you can out of those three. And it's difficult if you don't have that specific real estate experience. My wife's a tax attorney, but we still hire someone different does, you know international tax, which is very abstract and interesting. But my point is, real estate tax specifically, is there's a lot of fruit on the tree that you want to harvest. And you want to take advantage. So it's worth paying that money to find somebody. So timing wise, you know, it doesn't have to line up with any of your acquisitions. There is some neat stuff that Michaels talked about in the past will try to sound cool doing cost segues and stuff like that, but Michael: Nailed it. Tom: I mean, as long as you give yourself some leeway before going into tax season, I would say that's the real kind of timing and doing it hire a professional who has real estate specific experiences is important before tax season. So that's my timing two cents. Emil: I like it. I'm going to take the counter point. And I'm going to say that this is a person on your team who, Yes, you can look for them early. But I think there's so many moving parts earlier on to focus on your property manager which market you're going to invest in finding an agent if you take that route that I think the CPA can come a little bit later. I think a lot of fuel can get caught in all the nitty gritty of I should check off all these boxes. And it's like focus on educating yourself and then get that first property. I think the accountant can come a little later. So I'm gonna take the counter point, Michael: I think it's a really good point to make a meal and that who you ultimately work with can totally come after the fact I think it's really important that somebody at least have the conversation with a tax professional about a like how does real estate affect me personally, because I hear about it all the time. But I don't understand. So for me taken, you know, an average deal, whatever that looks like in your market, or wherever you think that might look like for you as a buyer, how would this affect me because I think it gives a really good insight and helps a lot of people purchase strategically based on some of the tax advantages that they may or may not qualify for. But I 100% agree that the actual person doing the tax returns can totally come after the fact. Emil: That's a good point. So also, I think when I bought rental properties I chose to that was the first year I hired a CPA to do my taxes. It was like I started doing some, like some side project consulting stuff as well. And so that makes me W2 mix with rental properties. I was like, You know what, I'm just going to give this to a professional, make sure I'm doing it a correctly and be getting maximum deduction so that I save as much as I can. I think we said all the time, a good CPA, they will save you way more than you actually pay them yearly. Michael: And I'm just curious, do you guys use a CPA on any kind of retainer or annual program or you just pay them for the time that you use when you speak to them? And then for the tax return? How does your program look? Tom: With my CPA, it's sort of a one time event every year I you know, it's not any sort of like recurring contractor engagement, I could like, use them one year and go somewhere else, but they already have a lot of my information. So it's, it's a lot easier to have some continuity with them. I've been meaning to do a little bit more like a consultation of kind of lifting up the books on all that I have within because right right now I basically just send them all my information all by my 1098 for my mortgage, my 1099 for property managers, I send them all that information, and they just come back with a nice, clean, albeit like pretty long tax return, just because there's so many moving parts that they understand. I've been meaning to do kind of more of like a like an engaged consultation and and have answered your question. But what I do with right now, it's just every year, just a one time do the going through the exercise, but no more strategic stuff. But I'm just something that I think I probably do this year on the list of things to do. Michael: Do it, do it? Yeah, it's really worthwhile to do that. That planning portion of things. And then what about YouTube? You pay them like an annual fee? Or do you just do the tax return fee? And then the hourly stuff? Emil: Yeah, it's just the paid to do my tax returns. But I'm probably in a unique situation that my CPA is my brother in law's very good friend. So I can always ask him stuff. And he's really cool about it. But he used to charge me a lot less like he was very inexpensive to start, I think like, friend discount. And I told him this past year, I was like, I asked you a lot of questions throughout the year, our taxes are getting more complicated, like just raise that fee that we normally pay you and he was like, I've never had anyone asked me to charge them more. But thank you. So you know, it was like he's become more consultative throughout the year. And I just want to make sure like, I'm compensating him so he's not like goddamnit Emil's texting me again, right. Michael: You don't want him to feel like you're taking advantage. Emil: Exactly. So I was like charging us more. And it's still like totally reasonable. So that's kind of how we have it set up with him. Michael: Great. Emil: How about you? Michael: Oh, yeah, I'm just hourly, and then whatever the tax return is at the end of the year, and so I'm chatting with my CPA several times throughout the year, kind of about next moves and strategy type stuff. We don't really have this formal sit down session where Okay, we're gonna talk strategy about what it is, but I'll call him up and ask him Hey, you know, cost seg, do you think that would have a big impact on my, on my taxes this year, and talked about the numbers and yada, yada, yada. So there's definitely expense ongoing expense throughout the year, but it's just whatever the hourly fee is, however long the call is, that's what that's what I pay him almost like an attorney. And it works great. And I I think it's well worth the money. I'd say it sucks when I get the bill. But I think it's it's money well spent. And it's a deduction to keep track of the… Tom: Yeah, it’s a deduction it is for listeners who are newer, Michael has a lot more moving pieces on within his projects. He's doing multi families doing, you know, all kinds of stuff. But at least for myself, it's a much more simpler engagement of kind of the the annual thing, but I think as you go into more complicated deals and structures, there is more meat on the bone for going through with your CPA. So he would be on the further end of the spectrum of kind of more, I guess, opportunity for tax savings and more more need for higher engagement. Michael: Right, right. Right. Yeah. more need for planning, I think. Yeah, absolutely. My first couple years, my first one, I had a handful of deals was not nearly as frequent or this often. So I think it's a really good point to make, Tom that this is going to be a pretty person that you probably won't speak to very regularly when you're first starting out. Emil: Yeah, good point. All right. Let's move on to the second part of these episodes where we talk about, Michael: We've got about a minute 50 left to cover these next topics. Good luck. Emil: All right. So moving on, we're going to talk about how do you source CPA? How do you go about finding someone who could be your potential CPA? So how did you guys go about it? Michael: I called around a bunch of different people. I was using this guy that my dad was using, with a big firm down in LA. And he was, he was really thorough, and he was really good and he was really expensive. And it just got to a point where I was like, Yeah, I just can't, like afford you. Slash need that level of service. So they provide all kinds of stuff. And a lot of that's baked into the cost of the returns. So I went and found my own person. And then that didn't work out. Well, I had a bunch of problems with the IRS because this guy was a pain in the butt. So then my brother found someone he liked down where he lived. And so I was using him and I have been for the last several years, and he's been great. He's a smaller shop, but really knows his stuff has a lot of real estate clients. So it's been a really good fit since but trial and error and we're going to share here in a minute, some of the interview questions that you can ask a CPA that I wish I had thought of a couple years ago when I was going through this process, because it would have been a lot less painful. Tom, what about you? Tom: Yeah, so using the same framework that I used in the last episode in sourcing a CPA, I think at the top of the pyramid is personal references is a great place to start and then pass there would be professional references. Oftentimes, a partner with a CPA is an attorney. So you know, if you have an attorney like oh, what CPA recommend, or do you have a CPA like, oh, what attorney you're like, they're oftentimes working together. The third level would be forums Roofstock Academy, that's a place where within our private Slack channel, we talk about vendors and CPAs pretty regularly, or at bigger pockets or friends there have a great forum. And then lastly, just general online research. I sourced my CPA from a reference a gentleman named Paul Kidwell, who was one of the early employees at Roofstock. Think he was our like VP of data, something just super smart guy. He's an advisor. I’ll stop now, but I got my CPA reference from me. Michael: Emil, I know you shared already that your brother in law's best friend, was that the first one that you use? Or did you have some trials tribulations leading up to that point? Emil: No, I wish it was more of a science that I could divulge sort of listeners, but I've known him for years, too, before we ever actually, like needed his services. And he's a good guy. And I was like, he was the first person I thought of when we needed a CPA and just let him run with it. And he's been great. So yeah, it was more of just going with my gut. Somebody I know. You know, I mentioned like, this is what we're doing. We're investing in property out of state and he was like, totally comfortable with it. And he's been he's been awesome at handling it. So Michael: Right on. Emil: Yeah, our situation is a little easier. Tom: I’m gonna give a shout out to my CPA, though. So I use Iryna CPA accountancy Corp. And she's awesome. So just a little free advertisement, something like Yeah, why not? Why not sure these people she's located out of Oakland and in Northern California, but her website is irynacpa.com. And I've used her for the last, I don't know, five, five years or so. And she's fantastic. Emil: Yeah, my CPA is Dan Ratynets. And he's at Eichenbaum, Comer a Ratynets. Michael: Awesome. And I've been using Josey Schenkoske with Bianchi, Kasavan a Pope and they're out of Monterey, California. They go by BKP and Associates. Tom: Some love, some love shout outs. Michael: Yeah. So I just want to give a kind of real quick personal anecdote from when I was going through my trials and tribulations trying to find a CPA. So I went from that really expensive one that my dad used. And then I was sourcing my own. And I found this guy, he was a one man operation. I went met him and we talked and he goes, Yeah, I can totally take care of all of this. And this is my accounting firm. That that totally sounds like he knew what he was talking about. No problem. My personal return, including all my real estate stuff was gonna be like 400 bucks. I was like, Wow, that's amazing. That's cheaper than har block. And so I got, you get what you pay for, two years later to get to another account. And he was like, Yeah, but I don't know. Like, what this guy did. This is not at all right. And so I had to pay for it to be corrected after the fact. So don't go with the cheapest option. That doesn't necessarily mean it's the best by any means. So look to that people above and beyond what it costs. Tom: I love the phrase penny wise pound foolish and you know, you might be like, Oh, this is awesome. I'm gonna save a couple hundred bucks doing this. And I bet you the pain the butt of going back and trying to fix that stuff, you know, know what the market rate is. And typically, we're just going to give super broad ranges But usually, I'd say like 1000 bucks is a pretty if you have a less complicated going up to I don't know what do you think the range Michael? Michael: Couple thousand, depending on how complicated that is? Tom: Anyways, I think oftentimes, you're going to get what you pay for. Michael: Totally, totally. And keep in mind too, for everybody listening. These are West Coast, California Bay Area prices that can totally range as you go in different parts of the country. I feel like attorneys and CPAs often have relatively similar pricing. So at least has what I found here in California for the most part. Emil: All right, so let's wrap it up with questions to ask that in questions to make sure you're going with the right person. You guys want to go through a couple of questions that you really like asking? Tom: Yes. All right. I got my question. First one is they need to have real estate experience and what kind of profile of customers they have is so important. I don't want to be somebody kind of break In this type of market as a CPA, and there's a little bit of specialization, so knowing that the other thing that's really important is what states they like have coverage in. So, Oh, am I stealing Michaels? That's cool, it's good, good, good, Michael: I'll get better ones at the bottom, Tom: I'm gonna leave you scraps. So if I have properties that are in, you know, Florida, Georgia, Pennsylvania, Ohio, I want to make sure that that my CPA has some experience there and has done in file in those different states. So yep, I took those two. Let's take it from there. Michael: I like asking the questions of what are your various rates? We touched on this earlier, but do they build by the hour? Do they build by the form, that's typically seen, like an har block style will build by the form. So if you have big we'll see that's this dollar market, Schedule E that this much and then ask if there's a flat rate option, that's a really, really important one to find out. But like I mentioned, that's not the only deciding factor. The other thing I like to ask CPAs is what can I do in advance that will make this process so much smoother and easier for you? Do you want a shoebox full of my receipts? Do you want an Excel doc with all of my expenses, because that's how I work best? And so just having that open communication on the front end of Hey, this is what my system looks like, is that gonna work for you? A lot of new investors have kind of the benefit of they might not have any systems yet set up. So they can tailor their system to work well with whatever their CPA is looking for. Emil: I get the real scraps, guys got nothing. Good luck. The only thing to add there would be, I think ask them if they work with other investors. That's a good one. I think Tom grab that already. Right. He said about other states or like being able to fund this now. His first one was about investors. All right. Okay. So I got a real bottom of the barrel you scrape. The only other thing I would ask just going off of what we talked about earlier, is expectations around like you asking questions or consultations throughout the year, right. So some people will say, this is my hourly rate. Or Yeah, you know, if you have any questions, no problem, just call me whatever asking that and getting the expectation right up front plane. Another good question to ask. Tom: I'm gonna sneak one more in references, don't sleep on the references. So perhaps ask if they have a client sort of a similar profile, if they wouldn't mind sharing email to basically check on that. That is just such a high ROI with regards to value. If you can talk to someone who has a similar situation, they like working, I recommend not sleeping on references. Emil: It's such a good one that I don't do enough. It's like such a good best practice. That is, you say, Don't sleep on it. I think you're stressing it because it's really easy to sleep on. But it's such an important one. Michael: Yeah, references. I think across the board is one of those things that it's so easy to physically do it, myself included. Don't do it enough. I don't know why that is. I have no problem talking to people. I've no problem picking up the phone and calling. It's just one of those things. Emil: Yeah, I don't know either. Michael: Yeah. If anybody has an idea about why Neil and I can't call references, please leave us a rating review. Let us know in the comment section what we can do better. Emil: Oh, wow. We're to wrap up that episode. All done. Emil: We'll see you on the next one. Happy investing. Michael: Happy investing. Tom: Happy investing.