As we acquire more and more (mostly buy and holds, but also some rehabs for a quick flip) it's becoming more and more of a hassle to keep the books.
I am yet to find an adequate piece of bookkeeping software which really lends itself to real estate investing. Quickbooks claims to be REI friendly, but it simply isn't. It's written on the premise of being service oriented with buying goods, selling the goods and or a service, then invoicing. I'm having a heck of a time forcing my transactions to fit that model.
At this point, I think I'd be better off with maintaining my old school way of just doing it all manually...but that's at the risk of missing something as our volume increases. Quite honestly, I'm very detailed with my manual bookkeeping and simply maintaining an accurate history is partially holding me back from doing more REI.
Mark, I set up my tenants as customers. I then set up my charges as memorized monthly recurring charges so they hit on the first of each month automatically each month; then simply enter the receipts and deposit them. I used to use Quicken but have found that changing over to QB Pro was not difficult at all. You can post late fees automatically too for anyone not paid on time etc. If you are stuck on something PM me and I'll try to direct you.
Thanks for the replies. Maybe I haven't given QB a fair shot so far...
To take my question to the next level... What do you for rehabs, specifically? Do you simply log all the receipts for Home Depot, contractors, etc.? Then, how about the initial cost of the property? What is that classified as? Then, what about loans and loan payments? And...when resell on land contract, what is that considered? It's not rent, that's for sure. QB seems too shallow when it comes to handling loans.
I am not too familar with QB, but I would think that it should have a fixed asset module. I would enter the purchase price of the property here, and the invoices for any additions to the basis for rehabs etc. I would break out the cost of the land with and the improvements/buildings into different accounts as there are different depreciation/tax rules for these. I am not sure if there is a depreciation module, but if not you will have to calculate the depreciation on a spreadsheet, and set up the amount as a monthly occurring entry.
As for loans, there should be a debt section/module where you can enter in the amount. You should be able to charge your debt payments through this module and it should ask you to classify the interest and principal payments accordingly or similar to the depreciation, you could run an amortization schedule in a spreadsheet and enter in this as a monthly occurring entry (this way is probably not the best method as there is no paper trail).
I am not sure what a resll on land contract is.
I am in the process of creating an interactive one for a private site. Unfortunately, I can't make it available here. But, I will answer any questions and help here independently of the content on the other site.
Let's take it in steps.
First, a property purchase is entered into an asset account. That is where you record the initial purchase price with a corresponding entry in either a cash account, if you paid cash, or a liability account tracking any financing on the property. Obviously, I am leaving out some of the double entry minutia here but if needed we can get on the phone and walk through it together.
By definition a "rehab" is a capital improvement that increases the cost basis of the asset. Home Depot and the others are vendors who will give you invoices or receipts. The payments will be applied to the property asset account as a debit, increasing the balance.
Then, what about loans and loan payments?
Loans you owe are liability accounts joined at the hip to the property asset account. Well, not really, but double entry accounting makes it act that way. The interest is an expense account as well as things like PMI, property taxes, etc.
And...when resell on land contract, what is that considered? It's not rent, that's for sure. QB seems too shallow when it comes to handling loans.
This is where it gets fun. The borrower is setup as a customer and the loan is a job for handling payments and it is also an asset so it ends up in an asset account too. The payments are applied to the appropriate accounts when they are received. Interest ends up in income, principal gets applied to the asset account reducing it and a corresponding entry to track the income part of the principal as income and another entry in the asset account of the property for the part of the cost you recovered in the payment. If you escrow funds for things like property taxes, insurance, etc, then it gets applied to the appropriate escrow account and then entries are made when the actual expenses are paid.
Set up this way, the reports are actually accurate without adjustment and your CPA will love you.
By the way, most of the movement between accounts should be setup as memorized transactions so that you just enter the receipt of a payment from your buyer for example and the other stuff flows through automatically.
Looks like Taz is your go-to guy for assistance in QB.
QBooks is, IMHO, the best software for RE and any other biz. It is difficult to learn at first as there are many different faucets to it, but if set-up correctly as Taz is describing, it is a wonderful tool. The problem is, many CPA's don't even know who to set it up properly for a real estate biz, so finding one that does is half the battle.
Edited: 06/26/2010 at 07:00AM
Will Barnard, Barnard Enterprises, Inc. E-Mail: info@barnardenterprises.com Website:http://www.barnardenterprises.com info@barnardenterprises.com
Taz, thank you for the detailed reply! Sounds like I just need to spend more time with it. In the worst case....are you for hire for QB configuration?! I can setup a webex or something! :lol:
What do we have to do to gain access to the tutorial you're authoring? I'd be more than happy to pay for such a lesson.
I hate to admit this but our accounts have gotten so complicated I am no longer qualified to do them. I'm very lucky to have a partner who actually likes these puzzels and computers.
For the investment property we use GnuCash which is free ware. For the remodeling company we use QB and Goldenseal so as to check these two accounts against each other, and to generate easy project accountings for customers to see.
We are considering taking on a PT book keeper soon to help with the load. I would always suggest delegating when you can, so you can stick to what you do well.
Of course you have a CPA look at all the accounts to make sure its kosher and working for you. He/she works with the book keeper to keep it all tuned up.
Maybe a book keeper is an option for you? Lots of talent looking for work now.
I am a big believer in the KISS principle. To that end, I run all my income and expenses through a checkbook for each company. Then, it's just a matter of entering the checkbook data into Quickbooks Pro and it's all done.
For setting up your accounts, I would strongly suggest talking with your CPA. Your CPA should already have a chart of accounts for the rental businesses he/she handles and can assist you in initially setting up the accounts in Quickbooks. Some accountants use account numbers and some don't (I do). There is a standardized numbering system for accounts and your account would probably be happy if your account numbers matched his/hers - just to make things easy and uniform.
Basically, you should have a folder in your file cabinet with receipts for each of your accounts. For example, you're have a folder for all your deposit tickets and a folder for each of your expense items. It is all very common sense once you understand how it works.
Mike - Yes, I currently have a file folder for each property. Within that is a sub folder for receipts, utility bills (if applicable), etc. At the end of the year I tally up all those expenses and categorize them according to how our accountant requires. I just want to make it all electronic to avoid mistakes.
Last night I talked to a couple members of the local REIA that I belong to regarding how they keep their books. All of them really like QB. Come to find out on of a different member's spouse has configured QB for several people for a small fee. From what I hear, she's able to configure it to do everything just as I need it. It sounds like I now have my answer! I plan to get in contact with her today.
How do you guys handle vehicle expenses? Is your vehicle owned by the company or do you record all your mileage if you're using a personal vehicle? I've always recorded my mileage, but even that is becoming a small chore!
Mark - in my other "life" I am an accountant and software consultant (QB proadvisor). Quickbooks will definitely work for RE investing/landlording - it just needs to be set up correctly.
My advice is find a proadvisor that has experience with RE investors or construction and have them help you with your setup.
QB is a great software when set up correctly - it is a major pain in the a** when it isn't! And will ultimately cost you more money to get it "cleaned up" at tax time - believe me, I have done it for too many clients!
It sounds like you found a great local resource but if it doesn't work out let me know. I charge a flat $100 to review and fix a QB setup for landlords.
i use spreadsheets...i got sick of the accounting software and all the info it wanted so I enter every receipt onto a master data file and extract what i need, when i need it.
The advantage an accounting system has over spreadsheets is up to date reporting.
How long would it take you to pull your spreadsheets together to give a complete balance sheet of your operation? It takes me about 10 seconds in QuickBooks.
If you do your own taxes, which I do then have them reviewed by my accountant, TurboTax will import the data from QuickBooks and if you have it set up correctly for your entity, it will put it on the right tax lines GUARANTEED. Can't get that from a spreadsheet.
BTW, I am not discouraging your use of spreadsheets to run your company. If it works for you, great. I'm just pointing out the benefits of a real accounting system go way beyond just tracking income and expenses.
I purchased the software for $99. It comes with a pre-loaded sample "company" set up. You follow the template, use the chart of accounts to set up your own accounts and customize it. The PDF instruction books walks you through examples of every kind of transaction you're talking about.
I have 2 rental properties and am currently working on 2 rehab projects. Pretty slick, run reports by property, keep track of loans, keep track of bills due, send rent invoices, etc.
If you're familiar with double entry accounting and already know how to run QB, this has worked for me. Send me an email, we can hook up and I will let you preview the 200 page instruction book that comes with it.
Jan 20 '09, 11:17 PM
