Introduction to Real Estate Accounting - What You Need to Know

Commercial real estate accounting has its own rhythm. The good news is that QuickBooks can handle they day-to-day aspects when it is structured correctly. In this introduction, the author tells you "what you need to know" about setting up QuickBooks for real estate accounting. 

Commercial real estate (CRE) accounting has its own rhythm: rent rolls and renewals, common area maintenance (CAM) reconciliations, security deposits, tenant improvements, intercompany loans - the list goes on. The good news?  QuickBooks can handle day-to-day tasks with ease when structured correctly. 

Whether you or your clients manage a handful of retail properties or a portfolio of office, industrial, and mixed-use properties, the correct setup turns QuickBooks into a reliable back office for owners, managers, and their accountants. Below is a practical framework you can put in place.

Design a CRE-ready Chart of Accounts.

Your chart of accounts does the heavy lifting. Please keep it clean and property-centric. Clearly delineate your expense accounts between those that are overhead, operating, and reimbursable.

Revenue

• Base rent
• CAM/operating recoveries (separate from base rent)
• Percentage rent (if applicable)
• Parking, storage, signage, utilities (pass-throughs)
• Late fees and other tenant charges

• Accounts receivable for tenant rent payments
• Security deposits held (liability, assets, or both)
• Prepaid rent/unearned revenue (liability)
• Fixed assets: buildings, improvements, equipment
• Construction in progress (for capital projects)
• Intercompany due to/due from (if you have multiple entities)

• Operating (non-reimbursable expenses if excluded from CAM): utilities, repairs & maintenance, landscaping, janitorial
• Reimbursable Expenses (those included as part of CAM): utilities, repairs & maintenance, landscaping, janitorial, insurance, property taxes, management fees
• Administrative & Overhead: subscriptions and dues, advertising, bank charges, software, payroll, professional fees
• Leasing: tenant improvements (consider capitalizing and amortizing)

Map properties, units, and tenants

QuickBooks isn’t a dedicated property management system, so your data model matters.

• Classes = Assets. If you need to use classes, use one for each building within the asset. Should you need to break out certain expenses for tenants within a single building, use sub-classes for each unit of the building. For example, in a shopping center, you may have 2 of 5 tenants that are restaurants and are responsible for grease trap charges. Using sub-classes for these units helps post the expenses to only the tenants paying for that expense.
• Customers = Tenants. Create a customer for each tenant in the entity.

This mapping provides you with property-level P&Ls and tenant-level receivables, eliminating the need for double entry.

Use Products & Services to drive rent and recoveries

Set up Products & Services (Income Items) for every recurring or billable charge:

• Base Rent
• CAM Charges
• Real Estate Taxes (can be included in CAM if you do not separate this for invoicing)
• Insurance (can be included in CAM if you do not separate this for invoicing)
• Late Fees
• Percentage Rent
• CAM True-Up/Reconciliation (year-end item)
• Any other item that you invoice for regularly 

Point each income item to the correct income account. Now you can create recurring invoices per tenant. When base rent increases on the anniversary, adjust the template rather than rebuilding from scratch. A property management solution would help remove this need for recurring invoices.

CAM and NNN^* reconciliations (without drama)

During the year, ensure that reimbursable expenses are posted to the correct Class (and subclass if appropriate) and reimbursable expense account. At year-end:

1. Run Profit & Loss by Classes for each property to total eligible recoverable expenses.
2. Compare recoverables to tenant billings (CAM Estimates) to determine over- or under-billings.
3. Invoice each tenant using the CAM True-Up income item. If you owe a credit, issue a credit memo instead.
   

Security deposits and prepaid rent

• Security deposits held: Record tenant receipts to a liability account (not an income account). When a lease ends, either refund (Refund Receipt) or apply against damages or unpaid balances (journal entry or credit memo routed through the same liability account).
  • Some states also require Security Deposit Asset accounts. Review your state law or consult with a CPA for guidance if this is the case.
    
    
• Prepaid rent: Post to a liability (Unearned Revenue) and recognize as income only when earned. For annual prepaids, set a monthly journal entry or a memorized transaction to record the revenue.
  

Repairs vs. capital improvements

Create a simple capitalization policy for materiality and useful lives.

• Day-to-day repairs and maintenance (R&M) are recorded as expenses.

• Roof replacements, structural upgrades, and major tenant build-outs are recorded to Construction in Progress and then moved to Fixed Assets.

Depreciation is typically handled with periodic adjusting entries from the accountant’s fixed asset schedule.

Reporting that owners will actually read.

At a minimum, deliver these each month (by property):

• P&L by Asset (Class): Operating performance with a prior-period and year-to-date column.
• AR Aging by Tenant: Callouts for >30, >60, and >90 days; include notes on payment plans or disputes.
• Cash Flow Summary: Beginning cash, inflows (rent, CAM), outflows (operating, reimbursable, debt service), ending cash.
• Budget vs. Actual: This is particularly important for reimbursable expenses that feed CAM.

If you need an actual rent roll, complex CAM automation, intercompany eliminations, or portfolio-wide consolidation, this is where a specialized CRE app earns its keep.One option many firms use alongside QuickBooks is STRATAFOLIO, which streamlines rent schedules, lease escalation tracking, 1-click CAM reconciliation, tenant certificate of insurance tracking, and a tenant portal, all syncing to your books.

Footnotes and Disclosures:

* - NNN is the abbreviation for "Triple Net" lease agreements. "Triple net" refers to three expense categories that the tenant must pay, in addition to their base rent. These include Net Property Taxes, Net Insurance and Net CAM. 

Feature content adapted from an article submission by Jeri Frank. This adapted Insightful Accountant content is provided for informational and educational purposes.

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