Today’s guest is Mark Kappelman.
Mark is a CFA and CPA, Co-Founder of RealEstateAccounting.Co, dedicated to helping property owners achieve financial independence by streamlining their real estate accounting processes. Join Sam and Mark in today’s episode.
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Mark Cappleman’s Background [00:00:41]
The Niche of REA [00:02:40]
Common Mistakes in Property Management [00:06:10]
Bookkeepers vs Accountants [00:07:59]
Best Practices for Property Management Accounting [00:10:14]
Expanding Services to Property Management [00:13:27]
Mark’s background and how REA started [00:16:08]
REA fills a need in the real estate market [00:17:11]
How to get in touch with REA [00:17:39]
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Connect with Mark:
Linkedin: https://www.linkedin.com/in/markkappelman/
Web: https://www.realestateaccounting.co/?utm_source=reaco
Connect with Sam:
I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns.
Facebook: https://www.facebook.com/HowtoscaleCRE/
LinkedIn: https://www.linkedin.com/in/samwilsonhowtoscalecre/
Email me → sam@brickeninvestmentgroup.com
SUBSCRIBE and LEAVE A RATING. Listen to How To Scale Commercial Real Estate Investing with Sam Wilson
Apple Podcasts: https://podcasts.apple.com/us/podcast/how-to-scale-commercial-real-estate/id1539979234
Spotify: https://open.spotify.com/show/4m0NWYzSvznEIjRBFtCgEL?si=e10d8e039b99475f
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Want to read the full show notes of the episode? Check it out below:
Mark Kappelman ([00:00:00]) – What our pitch always is to clients, which is, Hey, look, we’re, we’re cheaper than hire full-time. And most people don’t realize, cuz we’re 10 99 contractors. And what most people don’t realize is, is you think you need a full-time accountant, but you probably do not need a full-time account. Mm. You know, we always say you need accounting outcomes, not an accountant. You need your bank recs done on time, you need your AP done on time, and you need the reporting out to your investors, uh, and clients on time.
Intro ([00:00:28]) – Welcome to the How to Scale Commercial Real Estate Show. Whether you are an active or passive investor, we’ll teach you how to scale your real estate investing business into something big.
Sam Wilson ([00:00:41]) – Mark Cappleman is a cfa, a CPA and co-founder of realestate accounting.co. They’re dedicated to helping property owners achieve financial independence by streamlining their real estate accounting processes. Mark, welcome to the show,
Mark Kappelman ([00:00:54]) – Sam. Thanks for having me. Pleasure ab
Sam Wilson ([00:00:56]) – Absolutely. The pleasure’s mine. Mark, there are three questions I ask every guest who comes in the show in 90 seconds or less. Can you tell me where did you start? Where are you now and how did you get there?
Mark Kappelman ([00:01:05]) – Let’s see. I started by, you know, going to college and wasn’t sure I wanted to be in business. Wasn’t sure which major had a couple uncles said, Hey, accounting’s the language of business, uh, you gotta understand how to read a p and l a balance sheet. So if you don’t know what you wanna do, do accounting and you can come out with a cpa. Uh, so it’s pretty good advice. I think in hindsight I did that, worked in the big four. Um, you know, read a book called Rich Dad Poor Dad, which is cliche for a lot of people, but it com there’s a line in the book that says, you know, why not? Why climb the corporate ladder when you can own the ladder? And I was just, it totally threw me off. I was climbing the corporate ladder at that point. I wanted to get into real estate.
Mark Kappelman ([00:01:45]) – Um, my wife and I bought a single family home as a rental. Then we started flipping houses, you know, I left the big four cuz I couldn’t do both. And then we started rehabbing property. So now we’re rehabbing single families. We started rehabbing multi-families and then the process of doing that real estate was my side hustle. I outsourced my own accounting two different times and it just came back poor. The communication was bad. They didn’t understand, you know, n o I and what to capitalize and what to run through r and m. And so then we started looking around to say, Hey look, who’s just for focused on real estate accounting? Couldn’t find anybody. And that was where we really got the idea for r e a.
Sam Wilson ([00:02:23]) – And you’re absolutely right, you’re absolutely right. There, there, there is a lot of, of misunderstanding in that space. You guys decided to form r e a, but yet you focus even more, I think, niche inside the accounting side of things than even what the traditional listener might think of when they think of real estate accounting. What is that?
Mark Kappelman ([00:02:40]) – Yeah, yeah. So really our niche is property management. Um, when we started the business, the thesis was we’re gonna help fix and flippers just cuz that’s kind of what I was at the time. I was rehabbing one house at a time, you know, we had draws we needed help with and we thought that was the target customer. We actually got in market, we realized the much bigger opportunity and the bigger problems to solve were for property managers, bank reconciliations, accounts payable, and the quality of financial reporting. I think any of your listeners that work with third party property management companies, they’re probably getting a wide variety of the quality of financial information. And we get those financials, are they tax ready or not? Uh, and that’s where we realized, hey, look, they’re, you just can’t afford many of these property managers. The margins are so, so thin they can’t afford to hire high quality accounting talent. But if you work with a group like r e a, you may not need a full-time person, you might need a partial person. And we can bring that really high-end touch, um, at a fraction of the cost, maybe a fraction of the hours and deliver a better result.
Sam Wilson ([00:03:48]) – When, how much property did you have or were you managing of your own when you decided to launch r e a?
Mark Kappelman ([00:03:56]) – Yeah, I think today we’re at 40 units. I think when we got the idea, so we launched four or five years ago. We were probably at like 30 units. Um, you know, I’m managing 30 units in Chicago today. Um, but yeah, right in that like 30 to 40 range.
Sam Wilson ([00:04:12]) – And what was it along the, the process of managing and owning your own properties that gave you this insight into the kind of disconnect between property managers and accounting?
Mark Kappelman ([00:04:24]) – I mean, I just, we outsourced our books twice. Mm. And I was like, you know, at the time I was accounting was a side hustle, right? I’m still working as an account and now I’ve left the big four. I’m working for this tech startup, so I’m doing accounting all day and then nights and weekends I’m trying to acquire multifamily and do deals. And then I also have to do the accounting for that, right? And I’m like, I just can’t do this. And you know, I read the book I think is EMyth mm-hmm. that’s like, look, focus on re generation, outsource all the admin. So I’m like, accounting is admin to me in this real estate business, my daytime job, but it’s still admin over here. So I outsourced it and it just came back super bad. And, and, and real estate, you know, you can go into accounting, but like when people say, are you into accounting? Well, there’s a ton of different niches to that. And real estate’s just one of them. There’s very unique accounting things. Not everybody understands a closing statement, a refi. There’s all sorts of things that you have to do. So we just realized there was a lack of specialists, um, and we went for it.
Sam Wilson ([00:05:27]) – Absolutely. And, and yeah, to your point, I mean, I’ve often wondered, you look at the property management companies and it’s like the margins are thin. Yeah. There’s . It’s like how, how, how, how is this profitable? I mean, obviously it’s profitable at scale, but it has to be at scale and then in order to do it at scale just means there’s that many more moving parts. So clearly I’m, you’re preaching to the choir here and telling you that you’re solving a problem. But maybe let’s talk a little bit about some of the mistakes or some of the problems that ownership groups have when working with their property management, getting reports on time. Like what are some, what are some things you see, uh, maybe the, maybe the breakdown in communication or some other kind of, uh, common mistakes that, that occur in those, in those relationships?
Mark Kappelman ([00:06:10]) – Yeah, I think, you know, time and time again of what we see is, so o one small step back, 70% of our clients are owner operators, meaning they’re probably a syndicator or a wealthy individual, but more often a syndicator that is going out and buying the deal, but then also managing it. Okay? Mm-hmm. Okay. Um, and so the, the reason I bring that up and it, it, it, it relates to your question is that, you know, whether you’re that person or you’re a wealthy syndicator that’s now hiring a third party property manager, that’s probably the more common scenario. Sure. People don’t want a property manager, they want to do the deals, hire a local property manager, right? The thing about lo in that case is you need to report on full financials back to your investors. You know, when you go out and raise money and do a deal, you say, here’s what year 1, 2, 3, 4, and five are gonna look like.
Mark Kappelman ([00:07:05]) – And uh, here’s my proforma and, and and my opinion, the good syndicators are reporting out either monthly or quarterly on here’s actuals versus proforma. The reality is, is the books that your property managers keeping need to match, you know, don’t need the, the basis needs to match in that. Like r and m needs to be properly booked to repairs and maintenance and not CapEx. CapEx needs to be booked properly. Um, the right things need to be above and below the line on noi. The property manager needs to add the budget into their system. The same budget that you gave, that you gave your investors otherwise, now you’re doing a bunch of manual manipulation, uh, on your end and when your PM should be doing that. So I think, you know, it is just so often the accountants, I’m gonna say take a step back. So often the people working at property management companies are bookkeepers.
Mark Kappelman ([00:07:59]) – They’re not actually accountants. And we always say like, you need an accountant, not a bookkeeper. A bookkeeper knows how to add a bill. An accountant knows what general ledger account to use, whether it’s r and m or campex. I keep using that example. Uh, a bookkeeper knows to pay the bills an accountant needs to accrue for real estate taxes and accrue for insurance and book G P R and all these things that, you know, we take for granted as syndicators. Um, but I would lay, I would, I would wager to guess that nine out of 10 bookkeepers at property accounting firms have no idea what you’re talking about when you start talking about those things. Maybe the really big shops they do, but even then, uh, the skills vary. I,
Sam Wilson ([00:08:41]) – Yeah, I would, I I couldn’t agree with that more. And, and again, uh, you know, well kept books speak to my heart. Like I love, I love, you know, I’m a passive investor, uh, as well as an active investor in a lot of deals around the country. And there’s nothing better than the monthly email that comes and it has just, just a lovely spreadsheet or maybe just a PDF of like, Hey, here’s the accounting for the month. Or maybe it’s probably two months back, but whatever it is, it’s, it’s just, it’s great to see that’s like, oh, this is well done. They know what
Mark Kappelman ([00:09:12]) – They’re doing. Yeah. And, and what I would, and what I would say, cuz I, cuz I, I do the same passive investing now too, which is what I would say is in your expectation, if I’m a syndicator, I want to just be able to share the stock report reports from that property manager. I don’t wanna have to be doing a bunch of manual manipulation on my side. And that’s how you really know if you’ve got a quality accounting team at the property management is can you just take the p and l, the T 12, the rent roll and all the related reports and just send that out. You know, maybe you add some color as to here’s what’s going on with the leasing. You’re always gonna do that as the lead gp, but if you’re having to do a bunch of manual manipulation and change the numbers, I think you’ve identified a problem.
Sam Wilson ([00:09:56]) – Right, right. Undoubtedly. Let’s talk a little bit about the interview side of things. You know, as we’re, as we’re out here looking at property manager, property managers as we are interviewing them, what, what things should we we be taking into account, uh, from the accounting perspective?
Mark Kappelman ([00:10:14]) – Yeah, I mean questions, I I, I think about it from the best practices part from my side, which is, hey, you know, easy basic stuff. If we’re collecting serial security deposits, do you have a separate bank account that you keep those all in, that you reconcile every single month? Um, so other things like, hey, are you guys doing balance sheet reconciliations every month? Which means, you know, now we’re getting into the weeds, but are you ticking and tying AR and AP and prepaids and all these things that, you know, we do as an accounting team, I would want to know that the, the accounting team’s doing that. Um, how quickly are gonna expect financials, how many accountants are working on my, um, on my books? Uh, these are the types of things I would be asking. Uh, if I, if I was to GP a deal now and outsource it to a property magic company, I would obviously be really in the weeds, uh, on that. But those are the types of questions I’d be asking.
Sam Wilson ([00:11:12]) – Yeah, those are, those are, those are great questions. And, and it’s, and again, it goes back to that how detailed are they gonna be, but again, going back to the property managers, their margins are oftentimes thin. And so I guess how do you, how do you navigate that when you say, okay, maybe they’re a great property manager, but maybe their accounting is gonna be slow or, I don’t know. I mean, is there, is there a way to kind of sort between, they’re read between the lines on that and say, Hey, this is a decent, decent property management company, I can help ’em get their accounting done. Or is it just, hey, you’re, you’re, we’re, we’re, we’re out of business cuz this just isn’t gonna work.
Mark Kappelman ([00:11:49]) – I think, you know, ultimately I always tell people, you’re probably not gonna fire your property management company cuz it’s bad accounting. Maybe you will. But if their leasing’s great, if the management’s great, if retention’s great, um, you know, you’re gonna be able to kind of look over some of those things. Um, now in terms of what our pitch always is to clients, which is, Hey look, we’re, we’re cheaper than hire full-time. And most people don’t realize cuz we’re 10 99 contractors. And what most people don’t realize is, is you think you need a full-time accountant, but you probably do not need a full-time accountant. Hmm. You know, we always say you need accounting outcomes, not an accountant. You need your bank recs done on time, you need your AP done on time and you need the reporting out to your investors, uh, and clients on time. And if that means you’re hiring us for 80 hours or 40 hours versus 160 hour full-time person, um, you know, I always challenge people on people on that is you can hire us fractionally, get a higher quality and deliver on the results that your clients are expecting.
Sam Wilson ([00:12:55]) – Right. No, that’s, that’s that’s so true. So absolutely true. I love that. So you, you’ve got a, a, a deep history here, you know, starting out in as an accountant then you’ve gone to fix and flip, you still presently own roughly 40 units. You’re a limited partner in deals across the country. You are running the, um, your r e a what’s, what is that short for? I’m sorry, I’m
Mark Kappelman ([00:13:16]) – Real estate accountant,
Sam Wilson ([00:13:18]) – Uh, I’m an idiot real estate accountant. Uh, you’re, you’re running that company. Like what’s, what, what’s next for you? What’s, what’s something on your horizon that you’re really excited about?
Mark Kappelman ([00:13:27]) – Yeah, you know what, what, what we’re, what we’re really excited about right now is that as we’ve gone deeper in the accounting business, um, we had clients coming to us to say, Hey look, you guys are really good at accounting, but do you guys do any help with leasing? Do you do any help with maintenance coordination? Do you answer owner questions? Uh, and what we realized is, is look, there’s a, there’s a really big opportunity here for assistant property management and I can tell you why exactly as you earlier in the call you said, how many units do you manage? Uh, I’ve managed 30 units in Chicago and it was just me and a maintenance guy for the longest time. But then when I looked at what I was doing, leasing season was absolutely killing me. Uh, hosting the listings, somebody coordinating all the showings, somebody coordinated with the current tenant when they can they come over, he exchanged, um, um, filter change outs.
Mark Kappelman ([00:14:24]) – I mean I could go on and on and on and on and on. And so what we did is, in my own property management, I hired a virtual property management cuz the vast majority of things can be done virtually. Yeah. And yes, you need an onsite maintenance guy. So we heard this from multiple clients. Can you help with non accounting? Can you help with non accounting? I knew I had the same issue in my business. Hired the person kind of proved it out. And now, um, we’re offering that as a service to clients to kind of go deeper than just accounting. Uh, we, we, we really see r e a is conveniently r e a, but we really see the whole umbrella as kind of real estate administration. So the kind of vision would be payroll insurance. You can go really deep as to areas you can help.
Mark Kappelman ([00:15:06]) – We started with accounting, now we’re focused on property management and kind of assisting clients, uh, in that journey. There’s so many, we have so many clients. We have some really big clients, big teams. But a lot of our clients are entrepreneurs that are doing everything that are just starting outsource pieces. They’ve outsourced the accounting to us and now they’re like, wait, I can go spend time growing my business and you guys can do leasing coordination and you can do maintenance coordination. And we say, yeah, that’s what we do. And we think we have a unique competitive advantage because we’re already doing it at our own business. Right. You know, we’re not just accountants, we are actually people that have done deals, flipped houses, built new construction, managed property syndicated deals so we can kind of, uh, 70% of our business is with people that own and operate just because, you know, we’ve kind of been in their shoes maybe on a smaller scale.
Sam Wilson ([00:15:55]) – Sure. Sure. No, I think that, I think that’s great. What are some keys maybe as you look to scale that, that help you take on or tack on these new lines of business without getting distracted from your core business?
Mark Kappelman ([00:16:08]) – Yeah, I think that’s the, you know, you’ve heard all these stories, at least I have of people always wanna go to the next shiny object. And like that’s why quite literally from the last five years we’ve been hyper-focused on accounting. That’s all we’ve done. We’ve thought about going into tax. We realize don’t have a competitive advantage there. We’d be better off just referring it to tax c p a firms, uh, that specialize in that. This has just, you know, we’ve talked about going into different parts of real estate hotels or, you know, different sub niches. This just kind of like I displayed came naturally in that we had the problem in our own business. Clients are starting to ask for it and just thought, look, we should, I mean we understand this business and we already have a pool of clients that we can go pitch this into. Um, so it was just kind of natural. So I think we have stayed really disciplined. Um, and, you know, I love focusing on a niche cuz it’s really the same issues over and over and over and over and over again. And you get pretty darn good at addressing them.
Sam Wilson ([00:17:11]) – Absolutely. Mark, this has been insightful. I certainly appreciate you taking the time to come on the show today. I mean, you guys are filling a void, you already know that. Or filling a need, filling a need, filling a need. I don’t know which way you say that, but you’re serving your clients well for something that obviously Yeah. That you’re aware of that we need here, uh, in, in the real estate, especially the commercial real estate space. So thank you for taking this head on and uh, bringing what you do to the market. This is certainly awesome. If our listeners wanna get in touch with you and learn more about you, what is the best way to do that?
Mark Kappelman ([00:17:39]) – Yeah, best places go to our website http://www.rrea.co not.com, but do co um, that’s the best place. There’s a, you know, a link to book a meeting with us. You can find me on LinkedIn. I’m active ish there. Uh, but the website’s the best spot.
Sam Wilson ([00:17:58]) – Fantastic. Re a.ceo, we’ll make sure we put that there in the show notes. Mark, certainly appreciate you coming on today. Thank you so much for your time.
Mark Kappelman ([00:18:05]) – Yeah, thanks Sam. Appreciate it.
Sam Wilson ([00:18:07]) – Hey, thanks for listening to the How to Scale Commercial Real Estate podcast. If you can do me a favor and subscribe and leave us a review on Apple Podcasts, Spotify, Google Podcasts, whatever platform it is you use to listen. If you can do that for us, that would be a fantastic help to the show. It helps us both attract new listeners as well as rank higher on those directories. So appreciate you listening. Thanks so much and hope to catch you on the next episode.
