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Cash basis or accrual basis for real estate, which should I use?

Cash basis accounting records income when you receive it and expenses when you pay them. If a tenant pays January rent on December 28th, you record it in December. If you pay an insurance premium in December that covers the next year, you record the full expense in December.

Accrual basis accounting records income when you earn it and expenses when you incur them, regardless of when cash changes hands. That January rent payment on December 28th gets recorded as January income because that’s when it was earned. The insurance premium gets spread across the months it covers.

Most real estate investors start on cash basis. It’s simpler to manage, easier to understand, and for many smaller operations it’s perfectly adequate. You see what came in, you see what went out, and the difference is your profit. If you own a handful of rental properties and handle your own books, cash basis usually makes sense.

The shift toward accrual typically happens as portfolios grow or outside parties enter the picture. Lenders reviewing your financials for a loan may expect accrual-based statements because they give a more accurate picture of ongoing operations. Institutional investors and equity partners almost always require GAAP-compliant financials, which means accrual. If you’re raising capital through a syndication, your investors will expect accrual accounting.

Accrual also gives you a truer picture of how a property is performing month to month. On cash basis, a quarter where three tenants paid late looks terrible even if everyone eventually paid. Accrual shows the income in the period it was earned, so your reports reflect actual performance rather than payment timing.

Commercial real estate often requires accrual regardless of size. CAM reconciliation, tenant improvement allowances, and lease straight-lining all work better under accrual rules. If you own retail, office, or industrial assets with triple-net leases, accrual accounting will make your life easier.

The choice has tax implications. The IRS allows cash basis accounting for most real estate investors, but there are rules and revenue thresholds that can push you onto accrual. Certain entity structures and business activities also affect which method you can use. This is where the decision needs input from someone who understands both your current situation and where you’re headed.

You don’t have to pick one method forever. Many investors keep their books on accrual basis for accurate reporting while filing taxes on cash basis where allowed. This takes more work to maintain but gives you the best of both approaches.

Switching from cash to accrual mid-stream requires careful handling. You need to account for receivables, payables, prepaid expenses, and deferred revenue that weren’t on the books before. Done incorrectly, you’ll either miss income or double-count expenses during the transition.

Working with a real estate accounting firm that understands these methods from the start means your books can be set up correctly for where you’re going, not just where you are today. The right setup supports both accurate reporting and tax filing, whether you’re a landlord with a few units or a syndicator with investors expecting institutional-quality financials.

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More Questions

Who actually does my books day to day?

Your books are handled by Matthew Rodrigue and a dedicated team working under his direct oversight. Matthew stays involved throughout your engagement and knows your portfolio personally. The firm's in-house CPA handles returns and K-1s.

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What KPIs should a real estate investor track?

The six core metrics are net operating income, cap rate, cash-on-cash return, debt service coverage ratio, occupancy, and operating expense ratio. Which ones matter most depends on your asset class and capital structure.

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What is a 1031 exchange and what are the deadlines?

A 1031 like-kind exchange lets real estate investors defer capital gains taxes by reinvesting sale proceeds into another investment property. You have 45 days to identify replacement property and 180 days to close, using a qualified intermediary to hold the funds.

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My books are months behind. What do I do?

Reconcile every account, rebuild your chart of accounts, fix opening balances and miscategorized transactions, catch missed depreciation, and tie everything to prior tax returns. From there you move onto ongoing monthly work. Behind books are common in real estate and completely fixable.

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What does onboarding with your firm look like?

Onboarding starts with a call to understand your portfolio and entities, followed by an assessment of your current books. Most clients go through a cleanup phase before moving onto a steady monthly rhythm, with direct access to Matthew Rodrigue throughout.

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How are distributions calculated in a syndication?

Distributions are calculated against the waterfall in your operating agreement and each investor's capital account. The preferred return is paid first, then remaining cash follows the profit splits. Each distribution is documented against the investor's ownership percentage and capital account balance.

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Rock Real Estate Services is a boutique accounting firm serving real estate landlords, investors, operators, and brokerages nationwide. Bookkeeping, tax, advisory, and CFO services are all handled under one roof, with direct access to founder Matthew Rodrigue, an industry expert who leads every engagement.

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