DIY landlords are not accountants

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Most DIY landlords are not accountants; however they would like their financial data accurate. How can the software communicate debit and credit to the non accounts?

If someone who doesn't know accounting wants to do their own bookkeeping, they can keep it simple with basic programs where you write checks, enter rent deposits, etc. and the software handles the actual accounting behind the scenes.

Generally if you think about it, there are only a few basic types of transactions you do on a regular basis:

- Buy a property

- Record expenses (repairs, property taxes, utilities, etc.)

- Make deposits

- Pay down a mortgage

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

QuickBooks was designed for the Non-Accountant small business owner and is truly user friendly.

You don't need to know Debits and Credits because QuickBooks does all this for you behind the scenes.   

However, until some one teaches you how to do anything in life, one never knows how to do anything in life one hundred percent, at least by themselves.  

So this is a concept to help you out.  

You have to think of QuickBooks as your paper and pencil. 

If you sat down at the table you would bring out your paper and pencil and begin to list all your properties and how much rent you would get from them to see how much income you would make per property and for all your properties together, giving you a total income for everything per month.

In QuickBooks your paper is your computer screen.  And QuickBooks does everything basically in outline form. So you are going to have a lot of indenting to do when you enter your data into QuickBooks.  

But in order to indent you need to know the words QuickBooks uses to allow you to indent and to see your reports in outline form and these words are as follows:

  • Sub-Class   (a word for indenting in the Class section of QuickBooks)
  • Job (A word to indent in the Customer Center)
  • Sub-Account (A word to indent in the Chart of Accounts

Now the reason why QuickBooks uses these words for us to indent is because QuickBooks was first designed for the Building Industry, and Retail.  Therefore when they had a Customer, they needed to list what type of job they would be doing for this customer.  A kitchen rehab job, Windows, etc.  As much as QuickBooks as evolved in being user friendly, they have not come to the point yet, where we are allowed to customized the word Customer to Properties, or job to Tenants.  One day perhaps they will implement this. 

So let's list our properties as a class in the Class Feature of QuickBooks (just as we did on paper) to see what properties we own.  

The next thing we will do is list the properties again as the Customer in the Customer Center, because we need our rental property to be the ANCHOR that enables us to know (at a glance) where this tenant lives.  So we make our Property the Header (The customer) and then indent the tenant who lives there by making it a job of the rental property)  (See sample below)

So we listed all of our properties as a Class and then again as a Customer and made the tenants a job of the rental properties in the Customer Center and the amount of rent for each property (this is done through an Invoice)

So now, just like on paper, we have created a list of our properties, the tenants who live there and how much rent we will get for each property.  

So let's take a look at how this will look in QuickBooks.

Classes = a list of your properties  

          8252 Wisconsin Street Apartments  (Header)  (Class)

                 Unit 1   (sub class)  of the apartment building  (indenting)

                 Unit 2 (sub class)  of the apartment building   (Indenting)

You can see that the Building is the header and the units inside the building is a sub class.  Just another word for indenting. 

If you had single family homes you would just list them as headers with no sub class.

15333 Evergreen Street

17148 Braile Avenue

1645 Jeffrey Lane

Customer Center: 

            8252 Wisconsin Street Apartments  Customer = Header = rental property

                Unit 1 (Job of the building)  (indenting)

                          Teresa Williams    (tenant- she is a job of the unit) (job=indenting)

                Unit 2 (job of the building)

                          Brian Matthews (tenant- he is a job of the unit)  (word for indenting)

15333 Evergreen Street (Header) Customer = the building SFH

                            Michelle Liverpool   (job of the building)   (Indenting)

               17148 Braile Avenue   (Header)  Customer = the building

                            Kathryn Grant  (job of the building)   (word for indenting)

Chart of Accounts= sub account (indenting)

              Security Deposits   (main account)

                         Teresa Williams  (sub account)

                          Brian Matthews  (sub account

                          Michelle Liverpool (sub account)

                          Kathryn Grant (sub account

See all we are doing is listing and indenting.  QuickBooks does the rest for you. Ya just have to get used to the indenting words, and understand that you are just doing everything in a computer that would normally you would do on paper. But QuickBooks will calculate everything for you.

Three major things to know about in QuickBooks to obtain the facts you want to obtain is the 

  • The Chart of Accounts (Accounts used to report your taxes to the IRS)
  • Profit and Loss Report   (A Report that tells you where you stand financially)
  • Balance Sheet (A report that tells you your net worth TODAY)

These three Reports affect each other. So even though QuickBooks is easy to use, you must be very accurate when you enter in your data.  Just like if you transpose a figure on paper, you will have bad results, well this is the same thing in QuickBooks.  Make a mistake and you will have bad results. So don't be careless and take your time, whether keeping track of your finances on paper or in QuickBooks.

So that is my advice to you. Hopes this helps. 

Nancy Neville

For the DIY Landlords - you do not need to be an accountant - you do not have to learn debits and credits. You need to learn to be a CEO.

Where would you make the most money - finding that tenant, making the next deal on the property? Someone on the forum said they are taught to keep the admin expense next to zero. So my questions is why go to Dunkin Donut for a cup of coffee - that is an admin expense and that to you would get 50% deduction on tax return. So where is the profit? It is a bad habit or is it Caffeine too! Can you do without it? 

If you spend 5 hours doing data entry and then 30 minutes review your reports. Can you find a deal and market in that 5 hours where you make over 1000 or 10000 vs doing bookkeeping where you are paying someone few dollars? 

So lets talk about Debits and Credit. 

Credit 5000.00 Money in your pocket for 5 hours (add your own numbers)

Debit     500.00 Bookkeeper - paying money 

Profit   4500.00 INCOME. Wow!

You will still spend 30 minutes to review the reports every day or when ever the bookkeeper enters data.

All you need to learn is become a CFO/Controller of your business. Where the time and money is well spend.

Enjoy!

Gita Faust

No company avatar mediumGita Faust, Fast Trac Consulting | [email protected] | 866‑645‑3356 | http://www.RealEstateAccounting.com

My original question was based on a novice understanding of debit and credit. Some users want that data hidden to prevent confusion, while other users need to know they have a real accrual accounting behind the scenes for end of period balance sheets accuracy.

@Jeff Gates  

I just uploaded two videos - Chart of Accounts and Accrual and Cash basis.

I always suggest to use a software on accrual basis that way you have the best of both report on Accrual and Cash basis. 

Best part of is you can budget, forecast and cash flow.

You only need to understand debit and credit if you are going to add journal entry in a software.

Gita Faust

No company avatar mediumGita Faust, Fast Trac Consulting | [email protected] | 866‑645‑3356 | http://www.RealEstateAccounting.com

I don't get why landlords or commercial property owners want to do their own accounting/bookkeeping.

Hiring a property accountant/accounting company would be better so they can use their time on finding the next deal.

keep it basic. with landlording, you have income and expenses. a simple accounting program such as quick books will do all the work for you. if all you are doing is entering debits ( income) and entering credits ( expenses such as mortgage, taxes and upkeep), what else do you need to know?

Or, you could get yourself a genuine CPA, who will likely save you more on taxes than you will ever pay him or her. Good luck.
Originally posted by @Dawn Anastasi :

If someone who doesn't know accounting wants to do their own bookkeeping, they can keep it simple with basic programs where you write checks, enter rent deposits, etc. and the software handles the actual accounting behind the scenes.

Generally if you think about it, there are only a few basic types of transactions you do on a regular basis:

- Buy a property

- Record expenses (repairs, property taxes, utilities, etc.)

- Make deposits

- Pay down a mortgage

 Isn't buy a house and pay a mortgage a non necessity in rental property bookkeeping? 

You are owner and CEO. You need the information to make good business decisions. Would you expect a CEO of a Fortune 500 company to be cleaning the bathroom? No. Outsource your bookkeeping. 

We do bookkeeping and reporting for business owners but that's not just a plug for us but any bookkeeping service. Get someone who can give you the information so you can grow your business not your excel knowledge. 

When it comes to software, we use Xero for our clients because it's beautiful and easy to navigate and understand. 

Originally posted by @Jeff Gates :
Originally posted by @Dawn Anastasi:

If someone who doesn't know accounting wants to do their own bookkeeping, they can keep it simple with basic programs where you write checks, enter rent deposits, etc. and the software handles the actual accounting behind the scenes.

Generally if you think about it, there are only a few basic types of transactions you do on a regular basis:

- Buy a property

- Record expenses (repairs, property taxes, utilities, etc.)

- Make deposits

- Pay down a mortgage

 Isn't buy a house and pay a mortgage a non necessity in rental property bookkeeping? 

 You have to know what your assets are and what expenses you have. Mortgage interest is an expense.

Dawn Anastasi, Core Properties, LLC | http://www.coreprop.biz | Podcast Guest on Show #29

Yes, pay a mortgage is different than interest expense. Asset accounting may not be necessary. Although depreciation expense is.