The world of commercial real estate is vastly different than it was even two years ago. For some, it is a colder, more inhospitable place.
Financing is also beginning to pose an issue. Perhaps your mortgage interest rate was adjusted again (and in the wrong direction), or making your mezzanine loan payments on time is becoming more of a challenge with each passing month.
Triple Net Leases – the Answer?
Luckily, being the savvy investor/business owner you are, you chose to invest in triple-net lease properties. You do not sweat too much on the one-off roof repair or a swelling electricity bill. Why? Because you know these are common area maintenance (CAM) expenses, and you can pass most of them on to your tenants.
That is, in theory, you can.
In reality, your profitability might be circling the drain along with the parking lot power-washing debris.
Why You Are Missing Profit Opportunities Hiding in Plain Sight
Recoverable expenses are here, there, and everywhere.
Many have likely been mailed out and are now sitting on a desk somewhere, unopened and forgotten. Or some of your bills are delivered electronically, but they are getting buried in your email inbox, also forgotten.
Or your property needs an unexpected plumbing repair, and the plumber might neglect to invoice you right away for the work. As a result, you may not remember until six months later when the bill finally shows up.
This is a common scenario for many – you may have already completed your CAM reconciliation for the year and invoiced your tenants for their share. This means you will now have to carry the forgotten plumbing work, the misplaced paper bills, and the forgotten paperless bills until the following year when you do another reconciliation and can recover them.
As an unwanted bonus, you will also have to explain to your tenants why they were not billed for it the previous year when the work was done.
While the above scenario is a common occurrence, there is a solution – and a way to achieve it.
The Solution
While we wish the answer were more exciting, the truth is the solution is simple: timely and accurate accounting of your expenses.
The key to realizing the full potential of this kind of lease agreement with your tenants is to carefully monitor your expenses and verify they are being recorded in full, correctly and promptly. You must make sure your expenses are promptly entered when incurred, and you must regularly analyze your general ledger and your financial statements to ensure no transactions are missing.
Remember, the ultimate unrecoverable expense is the one no one knows about.
Eagle-Eyed Tenants – the Final Hurdle
Times may be tough for tenants as well, so it is safe to assume that when some of them receive their reconciliation, they will comb through every line item to make sure everything you are charging them for is copacetic and agrees with their leases.
Your best defense against this level of scrutiny is straightforward, organized and comprehensive support. This will oftentimes include copies of many invoices that must be dated, numbered and include enough detail for your tenant to trace back to their reconciliation report.
Assembling this documentation and verifying that every calculation is accurate and compliant is an arduous and time-consuming process, necessitating a high degree of both skill and experience – you may find that you need more experienced help than your current accounting staff to complete the job. If this sounds like your current dilemma, outsourced accounting can be a lifeline resource.
Windham Brannon Can Help Owners, Property Managers and Tenants Alike
If you’ve never partnered with an outsourced accounting provider, Windham Brannon is ready to show you how beneficial and crucial this resource can be for you and your commercial real estate endeavors.
Windham Brannon’s Outsourced Accounting professionals are committed to timely, high-quality reporting and ensuring that no recoverable expenses are overlooked. We collaborate with you or your property manager to obtain all pertinent data to produce accurate financial reports for both you and your tenants. That way, you can remain confident in your reporting and have peace of mind when communicating with your stakeholders.
Contact Us Today
Running your real estate business is time-consuming, and we understand the need to invest more time back into leading and growing your company than checking emails, recording CAM expenses or constantly notifying your property managers. We are a passionate, knowledgeable team of real estate accounting professionals who can help you achieve just that. For more information, contact your Windham Brannon advisor today, or reach out to Jodie Bartock and Rebecca Smith.
This article was authored by Stephanie Schroeder, Manager in the Outsourced Accounting Practice.
