This is another in the category of "how long is a piece of string" questions! Sometimes cunningly discussed as the question "who's your accountant, Rob?"
And if you don't know what a "how long is a piece of string" question is, it's one where my answer is always going to be "it depends"!
I don't know you. I don't know your personal circumstances. I don't know your accountant. I don't know your goals and aspirations... So it depends!!
Instead, let's focus on the types of things you need to consider to determine if your current accountant is right for you as you embark on the journey of learning how to become a property developer.
Before they start doing "stuff" with property, most people can either lodge their own tax return or use a very basic tax accountant service. And that's fine.
If you've already graduated to a basic accountant, then it's quite possible they'll be reasonably familiar with people owning one investment property. They may even be very keen to recommend buying properties in your own name, or using negative gearing as a strategy to minimise tax. EEEEK!!
That's a red flag telling you that your current accountant probably won't be the right one for you moving forward as a property developer.
Now, I'm not saying tax considerations aren't important, and when it comes to setting up a structure to own a property development site, the battle between your accountant (who looks at tax benefits) and your lawyer (who looks at asset protection) is never-ending.
But far too many accountants only know what they've been taught at accountant school, and have no real world experience in the wonderful world of Property Development.
So that's a really good question to ask your current accountant (or one you're thinking of using) - have you done any Property Development?
If you're new to the game, then I'd probably accept an answer along the lines of no, but I have a number of clients who are active property developers. As your business grows you might want more, but at least they should be familiar with the needs of a developer.
It's likely they'll have come across the concept of asset protection, and potentially even have clients with multiple structures. It shows a willingness to step outside the comfort zone of what they were taught and learn about more advanced approaches. So chances are they'll be okay for you initially.
One thing to realise about the Property Developer journey, though, is that starting out, minimising tax is more important. When you're turning over small deals, you want to pull out the best return you can financially.
But when you grow into bigger deals, and can now potentially retain stock when the development is complete, asset protection becomes a lot more important. So if there's a point at which you might need to move on from an accountant with limited experience in the field of property development to a more comprehensive and experienced service, that's it.
Because as you start to bring the ability to retain stock into the mix, a whole lot of things change. You potentially need new structures off to the side of your developments to reduce your risk and keep your tax bill reasonable. Having multiple ongoing structures and making sure they're put in place in the most effective way is a job requiring a high level of skill and knowledge. Getting it wrong can cost you, so paying for higher level advice is worth it.
That brings me around to another vital part of the puzzle - knowledge. Your own. Yes, I'm all for outsourcing tasks to professional property consultants on your team. Spend your time doing the things you do best!
But there's a big difference between delegating and abdicating. The fact is, if you don't understand what you need from your accountant, or the right questions to ask, or if they're doing things properly, you're in big trouble.
That's why it's so important to spend time learning all this "stuff" yourself first. Not because you ultimately want to be the one who ends up doing the work, but because you need to understand the work that's being done when developing property.
Our Property Development Formula course helps you understand the broader development process so you can ask better questions of your accountant, lawyer and other property development consultants.
Now, that doesn't mean that you need to know more than your accountant. That's unlikely! But you do need to know enough about what you've been doing and what you need to do in the future in the property development space to ask the right questions.
It all comes back to finding the right accountant in the first place. If you've never heard of a discretionary trust, for example, then how will you know the right questions to ask an accountant you're thinking of using? They may well respond with something that sounds fine, but unless you understand the topic yourself, they could potentially just bamboozle you when in fact they know very little at all.
This becomes even more important as your business grows. As I said earlier, there's probably a good number of accountants dealing with property developers and even small businesses in general who understand and can handle a single entity.
But the time will come when you have multiple entities, and you'd better understand what it is you need to achieve in terms of how they all interact, otherwise you're likely to end up in a big mess. Or in a situation where the accountant talks you out of doing certain things because "it's too complicated".
You don't need to know how to set it all up or how to do all the accounting for it. But you do need to understand enough to know the right questions to ask!
On a final note, your accountant will only ever be as good as the information you give them. To go all computer geeky on you - garbage in, garbage out! So even if your existing accountant is adequate for your needs right now, consider outsourcing your bookkeeping sooner rather than later.
Once things start to ramp up, the money spent on a good bookkeeper will save you a lot in accountant's fees! Even better, it will make more time available for you to focus on what you're really good at - being a property developer.
And if you don't know what a "how long is a piece of string" question is, it's one where my answer is always going to be "it depends"!
I don't know you. I don't know your personal circumstances. I don't know your accountant. I don't know your goals and aspirations... So it depends!!
Instead, let's focus on the types of things you need to consider to determine if your current accountant is right for you as you embark on the journey of learning how to become a property developer.
Before they start doing "stuff" with property, most people can either lodge their own tax return or use a very basic tax accountant service. And that's fine.
If you've already graduated to a basic accountant, then it's quite possible they'll be reasonably familiar with people owning one investment property. They may even be very keen to recommend buying properties in your own name, or using negative gearing as a strategy to minimise tax. EEEEK!!That's a red flag telling you that your current accountant probably won't be the right one for you moving forward as a property developer.
Now, I'm not saying tax considerations aren't important, and when it comes to setting up a structure to own a property development site, the battle between your accountant (who looks at tax benefits) and your lawyer (who looks at asset protection) is never-ending.
But far too many accountants only know what they've been taught at accountant school, and have no real world experience in the wonderful world of Property Development.
So that's a really good question to ask your current accountant (or one you're thinking of using) - have you done any Property Development?
If you're new to the game, then I'd probably accept an answer along the lines of no, but I have a number of clients who are active property developers. As your business grows you might want more, but at least they should be familiar with the needs of a developer.
It's likely they'll have come across the concept of asset protection, and potentially even have clients with multiple structures. It shows a willingness to step outside the comfort zone of what they were taught and learn about more advanced approaches. So chances are they'll be okay for you initially.
One thing to realise about the Property Developer journey, though, is that starting out, minimising tax is more important. When you're turning over small deals, you want to pull out the best return you can financially.
But when you grow into bigger deals, and can now potentially retain stock when the development is complete, asset protection becomes a lot more important. So if there's a point at which you might need to move on from an accountant with limited experience in the field of property development to a more comprehensive and experienced service, that's it.
Because as you start to bring the ability to retain stock into the mix, a whole lot of things change. You potentially need new structures off to the side of your developments to reduce your risk and keep your tax bill reasonable. Having multiple ongoing structures and making sure they're put in place in the most effective way is a job requiring a high level of skill and knowledge. Getting it wrong can cost you, so paying for higher level advice is worth it.
That brings me around to another vital part of the puzzle - knowledge. Your own. Yes, I'm all for outsourcing tasks to professional property consultants on your team. Spend your time doing the things you do best!
But there's a big difference between delegating and abdicating. The fact is, if you don't understand what you need from your accountant, or the right questions to ask, or if they're doing things properly, you're in big trouble.That's why it's so important to spend time learning all this "stuff" yourself first. Not because you ultimately want to be the one who ends up doing the work, but because you need to understand the work that's being done when developing property.
Our Property Development Formula course helps you understand the broader development process so you can ask better questions of your accountant, lawyer and other property development consultants.
Now, that doesn't mean that you need to know more than your accountant. That's unlikely! But you do need to know enough about what you've been doing and what you need to do in the future in the property development space to ask the right questions.
It all comes back to finding the right accountant in the first place. If you've never heard of a discretionary trust, for example, then how will you know the right questions to ask an accountant you're thinking of using? They may well respond with something that sounds fine, but unless you understand the topic yourself, they could potentially just bamboozle you when in fact they know very little at all.
This becomes even more important as your business grows. As I said earlier, there's probably a good number of accountants dealing with property developers and even small businesses in general who understand and can handle a single entity.
But the time will come when you have multiple entities, and you'd better understand what it is you need to achieve in terms of how they all interact, otherwise you're likely to end up in a big mess. Or in a situation where the accountant talks you out of doing certain things because "it's too complicated".
You don't need to know how to set it all up or how to do all the accounting for it. But you do need to understand enough to know the right questions to ask!
On a final note, your accountant will only ever be as good as the information you give them. To go all computer geeky on you - garbage in, garbage out! So even if your existing accountant is adequate for your needs right now, consider outsourcing your bookkeeping sooner rather than later.
Once things start to ramp up, the money spent on a good bookkeeper will save you a lot in accountant's fees! Even better, it will make more time available for you to focus on what you're really good at - being a property developer.
