Lender requests a "Breakdown of Renovation Expenses"

Lender requests a "Breakdown of Renovation Expenses"

Jon S.Pro Member
Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes

How does one put together a breakdown of renovation expenses for a commercial bank loan application? Does anyone know a short and simple way to do this? I must be having a hard time seeing the forest through the trees. Is there a simple way to do this that will look acceptable and professional?

I renovated a duplex and am refinancing it. All the paperwork for the loan is completed except the lender has emailed me a request for a "Breakdown of Renovation Expenses".  I'm trying but it is driving me nuts. Looking at receipts, looking over my QuickBooks account, I know exactly how much was spent on the renovation. However, breaking this down into categories seems impossible to do accurately. Each Home Depot receipt is a mish mash of so many different job categories, often reflecting a dozen different job categories, that is if you can even decipher the receipts codes, which are not user friendly. How do you decide which categories to use? For the most part, I can break down materials and labor. I can break out basics, such as the cost of the new roof, the kitchen cabinets, the flooring, and probably the paint, some plumbing. I can't break down labor into job categories because the contractor charged one price for labor, and some add on fees for extra labor.  For breaking down material expenses, the receipts are too difficult to comprehend due to the use of codes instead of simple English. 

Thank you

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Martin NealPro Member
Rental Property Investor · Chicago, IL · Member since 2017 · 293 posts · 383 votes
7y

@Jon S. A lender that I am working with actually gave me a form to break down the Scope of Work. It has a column for labor and for materials. Each row is a different category, plumbing, electrical, Hvac, etc. If your contractor charged you one flat price for everything, then you need to either go to the GC and ask for a breakdown or use the receipts to do it yourself. @Wayne Brooks is right, they probably aren’t looking too hard at the numbers for each category, just asking you to justify where the money went.

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  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    7y

    @Jon S. this sounds really weird to me.  What's the reasoning of why they need this?  Did you buy the property and renovate it with cash by chance?  Give me more scoop on the actual transaction if you don't mind.  Then I think I can advise a little better.

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y

    @Andrew Postell

    I bought it cash in early 2017 with existing tenants, and then renovated it as Tenant’s moved out in 2018. I finished the renovation in the final week of 2018. Then I went to my local community CU to refinance it.

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y

    @Andrew Postell

    The renovation was paid through my business checking, and with my Home Depot credit line, so all expenses are recorded, nothing cash.

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y

    @Andrew Postell

    I figured out a spreadsheet but this is my entire weekend poof! I have 72 receipts for materials, 90% are from Home Depot, which require about 10 min each to break down into categories that Home Depot classifies ea purchase under. First one must log in to their Home Depot Pro Account, then search by $ ant to find the transaction, then click on order detail, then use a calculator to add up ea category on the receipt such as Electrical Plumbing Millwork Flooring etc. some of it requires interpretation such as Millwork was Windows, Kit-Bath was AC Window Units! So it’s a lot of work breaking out ea receipt. Some underwriter has no idea how much work he added to my loan app process. I feel like printing all the receipts out, and dropping the stack of them on their desk, and ask them to figure it out! But at least I now have a spreadsheet that will accommodate all these categories. I am fuming though about this crazy amount of documentation. Thanks for listening to the rant :)

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y

    @Andrew Postell

    And that doesn’t include breaking down contractors labor charges ... which can be extremely vague and the bid is generally totally inclusive... aren’t usually broken down into neat categories.

  • Andrew PostellPro Member
    Lender · Fort Worth, TX · Member since 2016 · 8k+ posts · 6k+ votes
    7y

    @Jon S. maybe they are providing you with some different loan type?  For a standard Fannie/Freddie loan you do not have to show receipts of any sort.  That is not normal at all.  If this is too difficult to achieve I would certainly recommend seeking out another lender.  If you think you can deal with it then feel free to stay put but this is not something that would normally be required for any loan types out there.

  • Real Estate Professional · West Palm Beach, FL · Member since 2012 · 23k+ posts · 13k+ votes
    7y

    You don’t have to get it to the penny.....shouldn’t take more than hour.....they’re not going double check by going thru what you’re doing.

  • Martin NealPro Member
    Rental Property Investor · Chicago, IL · Member since 2017 · 293 posts · 383 votes
    7y

    @Jon S. A lender that I am working with actually gave me a form to break down the Scope of Work. It has a column for labor and for materials. Each row is a different category, plumbing, electrical, Hvac, etc. If your contractor charged you one flat price for everything, then you need to either go to the GC and ask for a breakdown or use the receipts to do it yourself. @Wayne Brooks is right, they probably aren’t looking too hard at the numbers for each category, just asking you to justify where the money went.

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y

    @Martin Neal

    That form would have been very helpful but now I’ve essentially made my own form in spreadsheet format. I realized that my Home Depot Pro account can export all receipts into one excel spreadsheet. I just have to make sure every purchase used the property name as job name, so I can filter by job name, then sort by category, and sub categories, and then export. That should get all Home Depot expenses which are 90% of the material expenses into a form that will be simple to summarize. After that the rest should be fairly easy. Thanks

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y

    @Wayne Brooks

    True, I’m just trying to be as accurate as possible, but you’re right. It really does come down to going crazy versus estimating the amounts. I’ll probably have do a little of both :)

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y

    @Andrew Postell

    Yes, it’s a small bank with its own underwriting criteria. They are generally receptive to lending to me, but they do have their own requirements. I’ll jump through some more hoops and hopefully that will complete all the loan info requests. The property is seasoned for over a year so it should just go by the appraisal value, so I’m not exactly sure why they want to know what was spent. But hey, we’re almost across the finish line so that’s all that counts now.

  • Real Estate Consultant · Norfolk, VA · Member since 2017 · 345 posts · 202 votes
    7y

    @Jon S. I would recommend doing a formal accounting of your transactions and since you said you already have Quickbooks, go ahead and connect your bank and cc in QB and do your accounting directly there, you're doing the work anyway. It's like hitting 2 birds in one stone, you will have you report for the lender and you have your accounting done for tax or analysis purposes. You just have to make sure you set it up that it will breakdown the costs based on the lender requirements (ie. HVAC, electrical, plumbing, roof, materials etc.). Good luck and hope you'll cross the finish line soon. 

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y
    Originally posted by @Dan V.:

    @Jon S. I would recommend doing a formal accounting of your transactions and since you said you already have Quickbooks, go ahead and connect your bank and cc in QB and do your accounting directly there, you're doing the work anyway. It's like hitting 2 birds in one stone, you will have you report for the lender and you have your accounting done for tax or analysis purposes. You just have to make sure you set it up that it will breakdown the costs based on the lender requirements (ie. HVAC, electrical, plumbing, roof, materials etc.). Good luck and hope you'll cross the finish line soon. 

    My Bank account is connected to QB and indeed QB came in handy for this, but we run into a serious glitch when it comes to Home Depot purchases. They are paid on a Home Depot credit line usually with very attractive 0% terms, so QB doesn't pick up those purchases since they were not paid out of the bank account.  Home Depot has this weird policy of not providing a link to QB for their personal credit lines; they only provide the link to QB on their business credit lines. However, the business credit lines only provide 60 days terms, not the generous 0% long term offers you can get on personal lines. Without that QB link you have to export to an excel file, and as I've discovered it is possible to do a good job sorting that export if you choose the "details" export file - otherwise you only get a receipt amt with no details. But with the detailed export I was able to export for the time period and for the job site, and then sort by department, class, and sub-class, which allowed me to categorize all my purchases in to Electrical, Roofing, etc. We combined that info with the info from QB into one spreadsheet, with totals for the categories in both materials and labor, and the report is working out good. I then made a new tab in the spreadsheet for a summary report, which just summarizes by category, in both materials and labor, so the bank can see just the summaries by category. Hopefully that will do the trick. I explained all this in case someone else has to go through this, these tips might help. It's still a lot of work, and a pain in the arse, but it is possible to do it this way.   

  • Real Estate Consultant · Norfolk, VA · Member since 2017 · 345 posts · 202 votes
    7y

    @Jon S. If you have online account to access your HD account, you can use that to connect it to QBO. I see multiple options to for Home Depot so I think you should be able to. 

    If you cannot connect your Home Depot account in QBO, you can use the exported excel file, save it as CSV then import it in QBO. The details can be mapped as the description so you have the details once you drill down the report. 

    So the way it will work, you will setup the Home Depot as a credit card in the chart of accounts, connect to online banking, map to that account then enter transactions like you enter the bank transactions. You can also enter "split" transactions in case you need to split a singe purchase into multiple categories/properties. The payment to Home Depot will then be captured as a transfer (in the bank register, enter the payment as transfer to Home Depot credit card account you just created). 

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y
    Originally posted by @Dan V.:

    @Jon S. If you have online account to access your HD account, you can use that to connect it to QBO. I see multiple options to for Home Depot so I think you should be able to. 

    If you cannot connect your Home Depot account in QBO, you can use the exported excel file, save it as CSV then import it in QBO. The details can be mapped as the description so you have the details once you drill down the report. 

    So the way it will work, you will setup the Home Depot as a credit card in the chart of accounts, connect to online banking, map to that account then enter transactions like you enter the bank transactions. You can also enter "split" transactions in case you need to split a singe purchase into multiple categories/properties. The payment to Home Depot will then be captured as a transfer (in the bank register, enter the payment as transfer to Home Depot credit card account you just created). 

    Dan, thanks, I have to give that another try. Maybe Home Depot is allowing the consumer cards to work with the QB link again. Either way, with direct connection or with export file, this would be the best solution for future tracking. Much appreciated!!! 

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y

    @Dan V.

    You were correct! I was able to connect QB and my HD card. It wasn’t connecting last time we tried, but now it is. Thanks again

  • Real Estate Consultant · Norfolk, VA · Member since 2017 · 345 posts · 202 votes
    7y

    @Jon S. I'm glad you're able to connect it!

  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    7y

    @Jon S.  If you can't figure out something on a Home Depot receipt, you can always type the item number on the receipt into the search bar on their website and it will come up.  Not always, but usually we buy the same category of items in each shopping trip, so if I can't figure out what materials are on the receipt that's what I do.  Works for Lowes too - they have shorter item numbers!

    Stephanie Medellin, Loan Factory58 Reviews
  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y
    Originally posted by @Stephanie Medellin:

    @Jon S.  If you can't figure out something on a Home Depot receipt, you can always type the item number on the receipt into the search bar on their website and it will come up.  Not always, but usually we buy the same category of items in each shopping trip, so if I can't figure out what materials are on the receipt that's what I do.  Works for Lowes too - they have shorter item numbers!

    Thanks for the information, that is helpful especially when you don't have a clue what it was, but wow can it ever be time consuming. 

    I spoke with the lender, I told him it was quite challenging to categorize all the purchases and asked him if there was a certain way they were expected to be done. He said he has seen them categorized so many different ways, that any method was okay. 

    So I updated the Pro account history to make sure all the purchases had the correct job site name, then downloaded the history for that job name into a CSV, opened that in excel, then sorted all the purchases by department, by category, and even by sub-category. I used either the departments or categories that home depot provided to lump sum the expenses into, and created a report from a resulting summary spreadsheet. I made two columns, one for labor, the other for materials, and if I knew the labor was x dollars for a specific job then i singled that out, otherwise it went into general labor. If i knew materials were for a specific job i singled that out, but otherwise it went into a home depot category. 

    Apparently it was sufficient as the bank has verbally indicated they will be refinancing the property. Still waiting on getting a closing date. 

  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    7y

    @Jon S.  That's great news, congrats!  I learned something new too - I didn't realize you could access all those receipts with a Pro account.  I think I've signed up for one at some point.  That would really help to track expenses.

    Stephanie Medellin, Loan Factory58 Reviews
  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y
    Originally posted by @Stephanie Medellin:

    @Jon S.  That's great news, congrats!  I learned something new too - I didn't realize you could access all those receipts with a Pro account.  I think I've signed up for one at some point.  That would really help to track expenses.

     The HD Pro account allows you to login and setup a list of as many credit cards as you want to track at HD, so that anytime one of those cards is used to buy something at HD, it automatically gets included in your Pro account records. That comes in very handy later when your trying to look something up. 

    You can also setup the following service: ability to send someone to HD to purchase items without giving them a card, you just give them your phone number; when they get to the pro desk for checkout they give your phone number to the clerk as your pro account number, and that triggers a text message asking for permission for the purchase to be put on your card; if you reply "1" the sale goes through, and otherwise it doesn't. It's very convenient if you don't want to give out credit cards and you don't want to be required to be at home depot for every purchase.   

  • Stephanie MedellinBusiness Member
    Mortgage Broker · CA · Member since 2014 · 1k+ posts · 644 votes
    7y
    Originally posted by @Jon S.:
    Originally posted by @Stephanie Medellin:

    @Jon S.  That's great news, congrats!  I learned something new too - I didn't realize you could access all those receipts with a Pro account.  I think I've signed up for one at some point.  That would really help to track expenses.

     The HD Pro account allows you to login and setup a list of as many credit cards as you want to track at HD, so that anytime one of those cards is used to buy something at HD, it automatically gets included in your Pro account records. That comes in very handy later when your trying to look something up. 

    You can also setup the following service: ability to send someone to HD to purchase items without giving them a card, you just give them your phone number; when they get to the pro desk for checkout they give your phone number to the clerk as your pro account number, and that triggers a text message asking for permission for the purchase to be put on your card; if you reply "1" the sale goes through, and otherwise it doesn't. It's very convenient if you don't want to give out credit cards and you don't want to be required to be at home depot for every purchase.   

     Thanks!!  That's great to know they offer all of that.

    Stephanie Medellin, Loan Factory58 Reviews
  • Gita FaustBusiness Member
    Accountant · Richboro - Philadelphia, PA · Member since 2008 · 901 posts · 246 votes
    7y

    You are using QuickBooks right? You should be tracking all the items you purchase. All the estimates you receive from subcontractors should be split between categories. Doing so, you will be able to pull reports at any time.

    When you spend money at Home Depot you should always create a free account for Home Depot Pro. From right there, you can pull your reports by property and where you spend the money. An alternative way is to use Hammerzen app to import all your receipts and statements. They have 4 level detail, sku, departments, sections, class. You decide how you want to cost segregate your purchases.

  • Jon S.Pro Member
    OP
    Investor · Tampa, FL · Member since 2015 · 530 posts · 92 votes
    7y

    @Gita Faust

    Thank you for both suggestions! I’m going to see my CPA for 2018 taxes and he’s my QB expert, so I’ll ask him about setting up the “free account” for HD Pro in QB desktop. I’m going to check out that app too. Sounds great both ways, better than what I’ve been doing.

  • Gita FaustBusiness Member
    Accountant · Richboro - Philadelphia, PA · Member since 2008 · 901 posts · 246 votes
    7y

    @Jon S. If you shop at Home Depot then you can get a free Home Depot Pro account. It does not directly connect with QuickBooks. But the other app does. Here is a list of what you can do with Home Depot Pro account. 

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