Budgeting owner occupied rentals

7 Replies

Hello! Being a personal finance coach, I am very experienced in writing and following budgets that have my best interests in mind. That being said, I am brand new to real estate and I am unsure the best way to manage the finances of our soon-to-be owner occupied duplex. Taxes, mortgage, and utilities are all part of our personal budget however, part of these expenses will be covered by the tenants rent. 

Generally, when coaching a business owner, I advise them to have 100% separation between business and personal finances. How does one do that if they are living in their business? 

Any words of wisdom would be appreciated!

@Lance La Croix

There is a difference between "living in your business" and "separation between business and personal finances"

The simplest way is devise all expenses by 2 and account for each separately when doing budgeting and/or taxes taxes

I'm surprised a finance coach cannot figure this out.

@Brian Van Pelt

Thank you for your suggestion. I did in fact "figure this out" but I am looking for best practices from those with more experience than me. I know there are several ways to do it. I am looking for what people have found works best for them. Even coaches need to learn, grow, and seek advise when entering new fields. I do not see anything wrong with that

Smart landlords use Azibo
One-stop-shop for landlords
Rent collection, banking, bill pay & access to competitive loans and insurance - free for landlords
Get started for free

@Mark S.

What qualifies me to be a financial coach is the same thing that likely qualifies you to be a real estate investor: continual education and improvement. I am certified as well but in all reality, holding a certification is not what makes a quality professional in most fields.

My clients are generally in their early 20s to mid 30s and are realizing they cannot go through life without a plan. I teach them how to develop a zero-based budget and how to eliminate consumer debt. I also help them set their financial goals and chart a map to get there.

Hi Lance – I think this is a good question because if it isn’t thought through you could have a mess on your hands. I am looking at it from a bookkeeper point of view. I have never worked with a client that lived in one side of a duplex – so this has been a good exercise.

If you aren’t in a place where you can have a separate checking account for your business property, I think you can structure your Chart of Accounts to create the division between business and personal. I do something similar with the property management company I keep books for.  We have multiple property owners and one bank account.

 I would use an accounting software like Quicken or QuickBooks self-employed. I would have 2 budgets – one for business and one for personal. You can use the budgets to create your Chart of Accounts. I would have separate accounts for business income and expenses. Your property expenses could all be together - i.e. the main category is Rental Expenses and have subcategories for utilities, taxes, lawn service etc. That would help keep things simple and your CPA will have an easy time finding the information he needs.  In both of those software applications you can split a transaction between different accounts. From what I have read, if both sides have the same square footage you split the expense in half. If one side is smaller, then you have to figure out what percentage of the whole the rental side is and split the expense by that percentage.

Another thing you might want to check into is how you track a security deposit - if you require it. That is on your books as a liability because more than likely you will have to return part if not all of it. In Georgia you are required by law to hold those monies in a separate bank account.  It might be different in your state.

Just a few thoughts, hope they help give you something to build on.  All the best to you.

If your goal is to grow and invest in real estate, stay away from Quicken. It is better to invest in a software that will take you to a point and then transfer the data.