OK, this sounds like a silly question but I really want to know if this is necessary and why. We have 19 accuired 19 doors using the BRRRR method mostly. 4 duplexes and the rest are SFH's. Wife has spend many MANY hours trying to keep Quickbooks pro straight over last 3 years or so.
We have yet to ever use quickbooks for any useful reason. Lenders never need anything from it, I don't, wife don't. When we do our taxes we break our the big table and categorize receipts (which usually have notes written on each one). Quickbooks does not transfer to Turbo Tax very well for realistate investors.
I would love to delete this curse from our lives and just use my reciepts.
Would love to hear some advise on this area.
Thank you all!
I should add, I use PM's on all properties. PM keeps good records and sends monthly statements on each property. We are super responsible when it comes to finances and watch all bank accounts closely. If there is ever a question regarding a payment made or regarding the cost of something, we just look in that particular account. Use a credit card for all business expenses for air miles and easy tracking.
In 3 years we have never found a use for quickbook info. NONE! I understand IRS likes you to spend time on books, but I believe my receipts are all the proof that is needed when they come for us.
Sounds like you should hire a professional bookkeeper to manage your financials on the day-to-day or month-to-month basis and have him or her report those earnings to a good CPA who is knowledgable about real estate. Don't do yourself in by doing it yourself. If your time is better spent elsewhere whether it be managing your properties, finding new deals, etc. then don't get bogged down with using inefficient book keeping software.
When you jumped into this business, did you have a teacher? Did you attend Landlord School? Are you a Real Estate Broker or Agent and knows about Market Values and Location, Location, Location? Sat in courtrooms to learn the landlord-tenant laws? Probably not, but I bet you have learned this business by experience and trial and error to have 19 doors. And you're trying to do the same thing when using QuickBooks. It's very rare to pick up any software program without having some type of manual to read or someone to teach you.
Now you've wasted a lot of time trying to use QuickBooks on your own. And now you hate the darn thing and probably are losing a lot of money you could be making if you used QuickBooks correctly to boot.
@Shawn Coverdell I agree that it sounds like you're doing double work. My opinion is using QuickBooks throughout the year (qtrly or monthly) should avoid sifting through receipts at the end of the year.
My suggestion would be: Keep receipts in a folder (physical or in the cloud) by month and by property. The receipts will serve as ultimate proof for an audit.
Your data in QuickBooks should be accurate as long as you are reconciling to a bank statement each month and categorizing appropriately. This process can be automated through linking your bank accounts or importing a CSV file. I recommend 1 bank account per property. There's no need to tally up receipts at year end as well if you're using QuickBooks.
Let me know if this needs any clarification.
Instead of getting rid of QB I’d stop wasting time going through receipts at the end of the year. Why are you doing that if you’re using QB?
I'm sorry to hear you are having so much trouble. QB can be frustrating, but once you get the hang of it, it is quite useful. The big take away here is that it will greatly help you get a handle on your business by allowing you to see the big picture and zooming into the details.
Here are some learnings I've picked up over the 3 years I've used it. Keep in mind, I have little bookkeeping or accounting experience other than what I've learned through my real estate business.
- Meet with your accountant and get their help to set up QB. This was the first thing I did and I would be in your shoes exactly if I didn't do this. My accountant does have some experience with it and they basically set up the Chart of Accounts and transaction classes for me. For each property, the accountant will help you set up general ledger accounts for buildings, furnishings & equipment, land, depreciation and other things that might be specific to your situation. This might cost you a couple hundred bucks for the time with the accountant, but it will pay dividends when you do your taxes
- Connect QB to your bank and download the transactions. This makes things super simple. I'm going to assume you have separate accounts for your business so you aren't co-mingle funds with your personal accounts. Every day (or on demand), QB will connect to your bank and download the transactions.
- Set aside time on a regular basis (like daily) to review the transactions. This helps you keep control of your business and your accounts. When QB downloads the transactions, you just need to choose the vendor, the type of transaction (rent received, expense, etc) and the class (the best way to set them up is to have a separate class for each property).
- Put the expenses paid by your PM into QB. With the frustration you've been having, you're going to think this is insane. Trust me, it is worth it. I go through my PMs statements each month and input the expenses and income that my PM handles. Yes, it is some work, but that is the only way you can really get a solid financial picture of what's going on in your business. Essentially, I have a 'wash account' where the income and expenses paid by the property manager are registered.
- Store the receipts with the transactions. See that "Upload attachment" feature in QB when you have a transaction? That is an excellent place to put your receipts. That way, the documentation is right there with the transaction. It helps the accountant verify you've coded things correctly and it will be a life saver if you are audited. Be warned: It is what will make QB 'sticky' as we say in the web industry. If you've got your receipts scanned and attached to transactions in your bookkeeping system, you ain't going nowhere. :-)
- The reports are the awesome sauce. When the transactions are coded correctly, the QB reports add a lot of value. I have 2 LLCs (one for my farm and one for about 15 rentals) and I can see the financial performance of each of these entities very easily. For each property within each LLC, I know exactly how much income and expenses they've generated for any given period of time (YTD is best for me). I can also see the % of income each type of expense and this lets me know where I need to focus to bring expenses in line. It is great for strategic planning. For example, my rentals are in Florida and when it rains, the grass grows like crazy. I spend a lot of money on lawn maintenance. Using these reports, I know exactly how much, when and for each property as well as the % of rent it consumes. That's a great help when negotiating with a lawn maintenance company.
- Back to your accountant. I think one reason you're not finding a lot of value is that your accountant doesn't use QB. For me, my accountant is a big fan and they encourage all of their business clients to use it. When they prepare my taxes each year, they verify my transactions (there are several hundred) and update depreciation for all buildings, equipment and rentals.
- Looking back at cash-on-cash ROI. QB Reports doesn't generate this for you, but you can easily download their reports into a spreadsheet and add a single line for the initial investment and generate your cash-on-cash return any time. It's quite helpful!
Sorry for the long post. I hopes this helps!
@Shawn Coverdell I recommend having a professional review your QB setup and your accounting process. There are items you can automate in QB and also it tends to learn your transactions (ie. it will suggest the category based on the last transaction for a specific payee). I agree with others about using receipts as additional support in case of the audit but QB should provide you almost everything you need to file taxes and to analyze your business. Also, there could be a risk of missing some transactions if you're relying on receipts.
Maybe your QB records are fine, you might just need somebody to show you what to look for and how to look at it. There's not a lot of QB tutorials that are specific to real estate industry but a good RE bookkeeper/accountant should be able to guide you to the right direction.
Accounting is not just merely crunching numbers, it is the language of business. Hope you'll find the real benefit of it.
I feel your pain and had the same question you did. I tried QB years ago and couldn't get the hang of it. I tried bookkeepers and as you get more doors then want mo money. Then I heard about Quickbooks Online. Took a 3 hour class for $150. QBO is so much better, but you do have an ongoing cost, but to me it's worth it. Items are automatically downloaded from your credit cards and bank accounts. Once you get the hang of it, it won't take you long. I do about an hour a week to keep on top of it. Get something like a Rado or NeatReceipts and scan in your receipts and save everything in a digital file for each property. I store everything by tax classification, i.e. Repairs, Supplies, Utilities, etc., so you can easily find them. You should be able to have everything on QBO at the end of the year with a click of a button to send to your Accountant.
Quickbooks is quirky for sure. But once your chart of accounts and classes are properly setup it is helpful for generating reports to see where/how money is being spent and coming in and lots of other items
Since you are using PM's, I would expect that they would send you a year-end report in addition to your monthlies. They should have all expenses other than major expenses that are likely depreciated and not that often.
Can you elaborate on the pile of receipts that you are going through? I would expect that to be really small assuming the PM is doing what I think PMs do.
Everyone is talking how easy it or difficult to use QuickBooks and what you should do. But let's forget it for now and concentrate on "Why am I spending time on QuickBooks?" Well here are few that I can think of:
- You are an Accountant - who views the reports once a year to do taxes (That is it)
- You are a Bookkeeper - you want to do the data entry because it does not make you money
- You are a DIY QuickBooks user - who will surf the internet and YouTube for answers and not have the full process, procedure, and solution
- You are a CFO - review your financials every day or week, depending on your business goals
Now let's get into the nitty-gritty:
- You as a business owner should look at your reports by each property and unit
- You should compare your Profit and Loss by:
----- Previous Year Comparison
----- By % of your Income
----- and the list goes on
Now about your Equity - view your Balance Sheet and see the difference from previous year how much money you paid and received by improvements and loan, the personal money you invested and more...
If you are looking at keeping the books for tax purposes and IRS, as well as use paper and pencil. As a matter of fact, I have clients still doing that.
Maybe the solution is to hire a mentor and learn to read the reports. When you do that, you will see the value.
QB is easy to set up and used well you would only have to look at receipts and banks statements once for the month they are in and then they can be filed and forgotten. After 7 years trashed. Your CPA or whomever is doing your taxes is gutting you for lots of cash if they are unwilling to use the quickbooks information.
If you use quickbooks and you balance the accounts every month than any CPA firm when doing your taxes should only cost about 600. That is the national Average. I bet you pay a lot more.
I also say you need to look at the reports you have that will tell you if each individual property is in the black and which ones are in the red. You could be making money hand over fist in one rental and losing most of that in another. And because you don't understand the program and the numbers it gives you you are probably losing money you didn't know about.
Or at least you are not as informed as you think you are.
I get it you are making a profit but does that mean you are using your money/ assets in a wealth building or are you just surviving.
@Shawn Coverdell QuickBooks and other bookkeeping software make life easier for everyone involved when those who know how to use it are the ones using it. If you're familiar with entering transactions, correctly setting up a chart of accounts, reconciling accounts, generating and reading reports, etc., bookkeeping is a breeze.
Also, maintaining good, clean books saves a lot of time for your CPA during tax time; property management statements and summaries are great, but they don't capture all deductible expenses. For example, PMs don't know of any costs you pay out of pocket (e.g., travel). Your books are where all activity is centralized.
If you find yourself spending too much time on Quickbooks, it's time to outsource it to a competent bookkeeper (preferably one who specializes in real estate), especially with the size of your portfolio. This will free up your time to spend on finding more deals (which is more valuable to you) and allow for someone else to take the reigns.
The same goes for tax work - with 19 doors and a lot of refinances (as a result of the BRRRR method), you should definitely consider hiring a qualified, real-estate-savvy CPA to make sure you're in the best tax position possible.