Investor · FL · Member since 2023 · 12 posts · 8 votes
Hello All,
I have been investing for the last 4 years in real estate and am on the way to purchasing my 3rd property (a flip :)
I am having a hard time knowing how I should organize my incomes, expenses, taxes, ect for easy bookeeping, to help keep everything separate legally, & to produce income on the money sitting in the accounts.
I can only explain my ideal thoughts in a graphic design so i will include that here:
Does this make sense in order to maximize profits & keep things organized?
Few notes: I will not touch the money in these accounts unless the income is being used to buy a flip or another property, which is about 10 months for me so that money will be sitting there.
I am considering a HYSA from Capital one as i saw as of today their APY is 4+% with a minimum deposit of $10K
I will be using baselane to organize and manage these transactions.
@Tiffany Da Silva, I use quickbooks online for bookkeeping and I use a "Profit First" approach to managing cash.
Profit First allows be to manage money without having to do all the daily math when money is lumped into one account.
You can customize the approach to your own needs. For example, when I take on a rehab I typically deposit the budget into a separate checking account solely for that rehab and pay all the rehab expenses from there making it easy to identify in my bookkeeping.
Read the book. Its super simple. So simply it almost seems silly when you read it but when you realize its addressing the things you're talking about here. It ends up being great that the solution really is very simple.
@Tiffany Da Silva, I use quickbooks online for bookkeeping and I use a "Profit First" approach to managing cash.
Profit First allows be to manage money without having to do all the daily math when money is lumped into one account.
You can customize the approach to your own needs. For example, when I take on a rehab I typically deposit the budget into a separate checking account solely for that rehab and pay all the rehab expenses from there making it easy to identify in my bookkeeping.
Read the book. Its super simple. So simply it almost seems silly when you read it but when you realize its addressing the things you're talking about here. It ends up being great that the solution really is very simple.
I love Profit First. Definitely, look into that. Super simple and effective for cash flow management. We recommend it to all of our Clients and will even help them set it up.
Regarding HYSAs, I recommend AmEx. I have one and they're currently at 4%+, no minimum balance, no transfer fees and unlimited transfers, and they pay out interest monthly. I've been super happy with it.
Regarding a bookkeeping software, bookkeeping for REI companies (especially rental property companies) is super nuanced. For example, for rental properties, lots of the categorization depends on the REI's specific tax strategy regarding what we're capitalizing versus what we're immediately deducting. It's heavily dependent on what the tax code allows and who is interpreting the tax code. There's room for flexibility depending on the desired tax strategy.
Once you have more than a few properties, you'll want to consider software. But, excel is totally fine in the beginning (in addition to your PM software to capture transactions outside of the properties).
We use QuickBooks Online exclusively for all of our REI Clients. I use it for my personal portfolio as well. We've found it has superior reporting features, integration features, and is overall more efficient to work within than other REI-specific software.
The downside is QBO is not set up for REI so you'll need to do that or work with an expert to ensure it is set up for your business appropriately. That's the key component that is usually missing when I hear other entrepreneurs/investors say they don't like QBO.
Something else to keep in mind is your entity structure and how your entities file tax returns. As a general rule, each entity that files a separate tax return (partnership, s-corp, c-corp, etc) will need its own QBO subscription. If entities are disregarded, you can keep up with more than 1 in a single QBO account using the location/business feature to keep track of them separately. This will save you on subscription costs.
If you want to discuss any of this further, I'm happy to answer questions and help walk you through it.
@Tiffany Da Silva Your proposed banking structure is effective for organization and profitability. Use an operating account for income and expenses, a reserve account for maintenance and taxes, and a high-yield savings account (HYSA) like Capital One's 4% APY for idle funds awaiting reinvestment. A separate flip account can help manage flips independently. Tools like Baselane simplifies bookkeeping and tax preparation by categorizing transactions and storing records.
Keep personal and business accounts separate to maintain LLC liability protection.
Please don't use the same LLC for flips and rentals. Your LLC that flips might need to be S-Corp eventually.
This post does not create a CPA-Client relationship. The information contained in this post is not to be relied upon. Readers should seek professional advice.
At the bare minimum, you should do the following to make your bookkeeping easier:
1. Dedicate one checking account and credit card exclusively to real estate. Keep personal and business finances separate to create less headache.
2. File all receipts in a dedicated Google Drive folder. Digitize physical receipts for easy storage and use a consistent naming convention for easy sorting - 2024.03.25 Home Depot.
3. Maintain proper records, such as contracts, settlement statements, and promissory notes.
4. You can track income and expenses consistently using software or spreadsheets.
As you scale, if bookkeeping isn't fun, consider hiring a bookkeeper for a couple hundred bucks per month. This is often one of the first things a real estate investor will outsource.
I agree with @Kevin Sobilo about Profit First. That is the best way to manage your portfolio!
I have been investing for the last 4 years in real estate and am on the way to purchasing my 3rd property (a flip :)
I am having a hard time knowing how I should organize my incomes, expenses, taxes, ect for easy bookeeping, to help keep everything separate legally, & to produce income on the money sitting in the accounts.
I can only explain my ideal thoughts in a graphic design so i will include that here:
Does this make sense in order to maximize profits & keep things organized?
Few notes: I will not touch the money in these accounts unless the income is being used to buy a flip or another property, which is about 10 months for me so that money will be sitting there.
I am considering a HYSA from Capital one as i saw as of today their APY is 4+% with a minimum deposit of $10K
I will be using baselane to organize and manage these transactions.
Any criticism / advice is welcome :)
I will share what we do. I am a similar size as you maybe slightly bigger. We have 5 long term rentals, 7 doors and have also been at this for a little over 3 years. By no means am I an expert but I tend to be very organized and our systems have worked well for us. Similar to what you said I knew I needed cash reserves for our business but didn't want that money laying around in a checking account not earning any interest.
For book keeping I recently transitioned from Google Sheets to Stessa. They are a property management software that is free. It can link to your accounts and bring in your transactions for book keeping. They also do listings, track leases, house documents, and can run reporting on your financials. Stessa also has banking with high yields but I haven't used them for that up to this point.
For banking I use one business checking account for all of my properties. I don't have individual accounts per property or per door. My book keeping breaks up my income/expenses, not my accounts.
To get more returns on my cash I opened up a business brokerage account through Fidelity. I have some of my money in that account invested but on my idle cash position I am currently getting 4.28% APR. This acts as a high yield savings account for me.
