How to keep track of finances on multiple flips?

Rehabbing & House Flipping
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How to keep track of finances on multiple flips?

Daniel Johnson
Real Estate Agent · San Antonio, TX · Member since 2016 · 13 posts · 17 votes

I am looking for some tips, advice, insight whatever, on a problem that my company is facing. We use the houseflippingspreadsheet to keep track of individual projects, which is great, but does not give any sort of company overview. I believe we are going to use a mix of the spreadsheet and quickbooks to keep track of our financials but as for paying contractors and vendors how do you separate each house? We currently have 5 houses in different stages of repair and are looking to scale to where we will have 8-10 properties at a time. Having a separate checking account for each house just doesn't make sense at this level, so am I just stuck manually figuring out what house each charge goes to or is there a better way? Everyone I have talked to maxed out at about 3 projects at one time and could manage 3 check books, debit cards ext so I am trying to see if anyone else has the same problem we do? Thanks for any tips!  

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J ScottPro Member
Moderator
Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
10y

Use QuickBooks.  Assign each house a "Class" and tag each transaction with the appropriate Class.  You can create a separate "Overhead" Class for those transactions that are not house specific.

You can then do reports "by Class" to see the details for any particular house.

I have one QB file that I've used for over 200 projects...no issues for either me or my accountant.

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  • Ben Wendt
    Investor · Wilmington, DE · Member since 2015 · 55 posts · 19 votes
    10y

    This is a fantastic question that I look forward to hearing answers about. 

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    10y

    Use QuickBooks.  Assign each house a "Class" and tag each transaction with the appropriate Class.  You can create a separate "Overhead" Class for those transactions that are not house specific.

    You can then do reports "by Class" to see the details for any particular house.

    I have one QB file that I've used for over 200 projects...no issues for either me or my accountant.

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  • Daniel Johnson
    OP
    Real Estate Agent · San Antonio, TX · Member since 2016 · 13 posts · 17 votes
    10y

    Thanks @J Scott, I saw someone else mention that method in another discussion and I believe they mentioned getting the idea from you. Do you elaborate at all on this topic more in your book? Thanks for the help! 

    0Reply
  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    10y

    Quickbooks and HIRE AN ACCOUNTANT to help set it up and run it.

    The biggest mistake I ever made was waiting too long to get professional accounting help. Ended up costing me a whole lot of money on down the road.

    2Reply
  • Polar Prutaseranee
    Flipper/Rehabber · Tustin, CA · Member since 2015 · 433 posts · 103 votes
    10y

    Yeah. What @J Scott said. 

    0Reply
  • Allen Hayes
    Investor · La Grange, KY · Member since 2016 · 44 posts · 19 votes
    10y

    I'm a corporate accountant and use Excel. My personal opinion is that QB and the like are good for very big companies with a complicated portfolio and your accountant who can just import the data and saving him work.

    I have 5 properties, 27 total rental units that have needed a ton of work each.  Currently running it on 5 tabs, one for each property then consolodating to a reporting tab for summary results.  In the future with more inventory I'll just put it on one tab with different columns to give it categories and keep it straight, just throw a pivot table/pivot chart over it and you have all the reporting you need. 

    Columns:

    Month:Property:Account:Amount

    1Reply
  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    10y
    Originally posted by @Allen Hayes:

    I'm a corporate accountant and use Excel. My personal opinion is that QB and the like are good for very big companies with a complicated portfolio and your accountant who can just import the data and saving him work.

    I have 5 properties, 27 total rental units that have needed a ton of work each.  Currently running it on 5 tabs, one for each property then consolodating to a reporting tab for summary results.  In the future with more inventory I'll just put it on one tab with different columns to give it categories and keep it straight, just throw a pivot table/pivot chart over it and you have all the reporting you need. 

    Columns:

    Month:Property:Account:Amount

    How do you handle month end reconciliation and year end reporting? Cash or accrual basis? 

    What about overhead not tied to a specific project?

    1Reply
  • Angela Connors
    Property Manager · Knoxville, TN · Member since 2016 · 5 posts · 5 votes
    10y
    Check into Buildium. Works great for PM and you may be able to tweak it for investments.
    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    10y
    Originally posted by @Daniel Johnson:

    Thanks @J Scott, I saw someone else mention that method in another discussion and I believe they mentioned getting the idea from you. Do you elaborate at all on this topic more in your book? Thanks for the help! 

    I don't discuss accounting in the book, but if you purchase the package from BiggerPockets, it comes with my Quickbooks Chart of Accounts (the layout of my QB file).

    The reason I don't discuss accounting is because there are so many correct ways it can be done, but tends to be pretty specific to how your accountant prefers you to do it (assuming you have an accountant).

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  • Christos Philippou
    Wilmington, DE · Member since 2016 · 116 posts · 59 votes
    10y

    I have a friend that is an accountant and I have had a similar discussion with him about how to manage my rentals in terms of finances, repairs, costs, income etc. Since I only have 2 properties and 6 units, he said a good, well managed, well laid out excel workbook would be fine. I agree with @Allen Hayes I think. For people who aren't HUGE and completely overwhelmed, I feel like quickbooks may be a waste and slight overkill. Excel is perfect for me now, but I am sure I will need to "upgrade" down the road.

    0Reply
  • Allen Hayes
    Investor · La Grange, KY · Member since 2016 · 44 posts · 19 votes
    10y

    @Aaron McGinnis

    Current month activity looks like:

    MonthPropertyAccountAmount
    JulyWestportRent-1000
    JulyWestportCash1000
    JulyWestportWater400
    JulyWestportCash-400
    JulyOverheadCash-100
    JulyOverheadMeals100

    Now just add a pivot and you can see your net cash, net utilities, etc.  This is way more readible in a pivot with pretty formatting.  Makes it pretty easy to reconcile cash changes and all that fun stuff.  If you get bored you can make different pivots for the same data to show it as income statements, balance sheets, by property, etc.   

    TypicalMonth
    AccountPropertyJuly
    CashOverhead-100
    Westport600
    Cash Total500
    MealsOverhead100
    Meals Total100
    RentWestport-1000
    Rent Total-1000
    WaterWestport400
    Water Total400
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  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    10y

    @Allen Hayes - 

    With total respect, you're falling victim to the Dunning-Kruger effect. 

    For someone whose profession is accountant, your system seems trivial to set up and maintain. (Also, I'm curious to see how your system would work against a company with hundreds of transactions every month)

    For someone who has a less broad knowledge base, or more limited knowledge of Excel, your system is going to be hard to implement and challenging to maintain. 

    Also, down the road (When you decide that running your own books is no longer fun and your time is more valuable than doing data entry and month end reconciliations) your system would need to be taught to an employee or outside accountant... it's a custom solution, which means that automatically the learning curve is going to be much worse for that person vs. Quickbooks, which has a very large, existing base of knowledge and service providers.

    I have an education in the typical accounting given in business schools (Managerial, Financial, etc.), and plenty of knowledge of Excel (I've written VBA overlays for Excel that counted thousands of code lines). But, designing, building, and implementing a system robust enough to handle my business would have cost me far more time (and money) than buying Quickbooks and hiring someone to set it up for me.

    I started with Excel, and ultimately I waited too long to make the switch to Quickbooks... then waited too long to get real professional help. My hubris cost me a small fortune several years down the road when I had to pay a professional to spend many, many hours retroactively setting my books straight.

    My advice to ANYONE starting a business is the same... at the first sign of doing transactions, spend the necessary money to sit down with a professional accountant and set up a proper book keeping system. Even if you run it yourself for a few years, later on down the road it'll be much easier to make a transition to paying someone else to run it for you.

    I also strongly recommend people pay an outside source to do their month-end reconciliations and year-end taxes. A third party will force an additional layer of accountability and precision vs. one person doing it themselves.

    1Reply
  • Simon W.Business Member
    Real Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 665 votes
    10y
    I concur. Reconciliation is one of the biggest things that needs to be done on a monthly basis. This helps keep your books accurate. You can outsource your accounting department or just partial work. A 3rd party is like a fresh set of eyes that can raise good question or even suggestions that you might not have noticed.
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  • Allen Hayes
    Investor · La Grange, KY · Member since 2016 · 44 posts · 19 votes
    10y

    @Aaron McGinnis, if you're doing hundreds of entries per month you're beyond the scope of what I was talking about.  Frankly, if your company is doing hundreds you're not going to be on BiggerPockets at all.  My system is a basically the same as the old 2 column paper ledger, just in Excel so you don't have to add it yourself.  You are correct that it doesn't scale if you get employees but it's because of audit trails and controls and employee taxes.  A spreadsheet doesn't offer the ability to see who is making or editing entries so it's high risk for fraud and computing payroll taxes is a freaking nightmare.  Once you have an employee, get an accounting system that has payroll plug ins.  Loading historical data in is something your accountant should be able to do very easily.  Yes, you'll have to learn a new program but you'll already have your accounting system down. 

    To go beyond the scope of the forum question, if you do get an employee, get a pro to help you set up business processes to make sure they can't defraud you blind.  Reconciling cash accounts and approved vendor lists is a huge thing that everyone should do. Also, don't be afraid of subledgers.  My rent receivables is it's own form, lets me track a lot of details about rents, renters, dates, notes, etc without blowing up the ledger with stuff it doesn't need.  At the end of the month I just record the totals to the ledger.  If you're doing 2 house flips and need to keep the expenses seperate just keep subledgers for each then record the totals to the ledger.  Also, don't be afraid of recording things at a higher level.  I make an entry for the lowes bill, not for every blind and board I buy. 

    0Reply
  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    10y
    Originally posted by @Allen Hayes:

    @Aaron McGinnis, if you're doing hundreds of entries per month you're beyond the scope of what I was talking about.  Frankly, if your company is doing hundreds you're not going to be on BiggerPockets at all.  

    I guess I need to log off, then. Sorry Biggerpockets, it's been real.

    3Reply
  • Allen Hayes
    Investor · La Grange, KY · Member since 2016 · 44 posts · 19 votes
    10y

    Why aren't you leveraging sub ledgers to maintain some organization to your ledger?  You've got to be either dragging a lot of extra info the main ledger to support sub ledger functions or you're missing details you could use for reporting because youre main ledger can't support all that information. How many employees do you have supporting this thing?

    0Reply
  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    10y
    Originally posted by @Allen Hayes:

    @Aaron McGinnis, if you're doing hundreds of entries per month you're beyond the scope of what I was talking about.  Frankly, if your company is doing hundreds you're not going to be on BiggerPockets at all.   

    What does that mean?  I know Aaron, and he is likely doing thousands of entries per month.  I'm guessing most people who do more than one or two flips simultaneously are doing hundreds of entries per month.

    On a typical project, I'll do 100-200 entries over a 2-4 month period, or about 50-100 transactions per month.  If I'm doing 5 projects at a particular time, that means I'm probably doing 250-500 transactions per month.  

    Why wouldn't I be on BiggerPockets?

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  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    10y
    Originally posted by @J Scott:
    Originally posted by @Allen Hayes:

    @Aaron McGinnis, if you're doing hundreds of entries per month you're beyond the scope of what I was talking about.  Frankly, if your company is doing hundreds you're not going to be on BiggerPockets at all.   

    What does that mean?  I know Aaron, and he is likely doing thousands of entries per month.  I'm guessing most people who do more than one or two flips simultaneously are doing hundreds of entries per month.

    On a typical project, I'll do 100-200 entries over a 2-4 month period, or about 50-100 transactions per month.  If I'm doing 5 projects at a particular time, that means I'm probably doing 250-500 transactions per month.  

    Why wouldn't I be on BiggerPockets?

     Too busy making all those log entries in your home-built accounting system!

    1Reply
  • Allen Hayes
    Investor · La Grange, KY · Member since 2016 · 44 posts · 19 votes
    10y

    Sorry maybe, I'm confused here, what are you calling a transaction?  How detailed are you breaking out your GL?  I'm really not trying to get into an internet argument over accounting systems. I really just can't figure out how you produce so much volume per project.  Just keying that many entries would consume days, maybe a week even, every single month.  I fixed up a 3bedroom/1 bath house that was had it's plumbing and AC stolen and the bathroom floor rotted out and I couldn't have created 100 GL entries without breaking out every receipt at a line item and every trip by itself. 

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  • Simon W.Business Member
    Real Estate Consultant · Lehigh Valley PA & New York City · Member since 2013 · 1k+ posts · 665 votes
    10y
    I don't get how you can be doing thousands of entries. Even if you are entering every single line item of receipts, I don't get it.
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  • Daniel Johnson
    OP
    Real Estate Agent · San Antonio, TX · Member since 2016 · 13 posts · 17 votes
    10y

    I think the confusion here is between people who are flipping and people who have rental units. I would hope as a landlord you don't have any where near even 50 transactions on a regular month, on that many units.. you would be broke. We are talking about spending 50k-150k in rehab costs per house, subbing out every job (I also buy almost all materials for the jobs but I do not pick it up! That way the sub cannot markup the cost on me) . I can go through 2-3 check books per house on top of the countless purchases from different stores on the debit card. Multiply that by 5+ houses (not units) thats 250k+ at a time coming in an out of our accounts. I am proficient in excel but not enough to build and maintain something that would meet our needs. 

    @J Scott thanks for the info, I am setting up my QB now following your COA.

    @Aaron McGinnis stick around for a while, thanks for the insight! 

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  • J ScottPro Member
    Moderator
    Investor · Sarasota, FL · Member since 2008 · 17k+ posts · 17k+ votes
    10y

    On a typical project, here are the contractors I'll probably use:

    - Demo

    - Roofer

    - Painter

    - Carpenter

    - Plumber

    - Electrician

    - HVAC

    - Window Company

    - Tile Guy

    - Carpet Guy

    - Hardwood Guy

    - Cabinets/Countertops Company

    - Termite Inspection

    - Landscaping

    - Garage Door Company

    - House Cleaner

    In addition, on many projects I'll also use:

    - Drywall Guys

    - Insulation

    - Surveyor

    - Structural Engineer

    - Inspectors

    - Concrete Company

    - Driveway/Paving Company

    - Grading

    - Tree Trimming

    - Shower Glass Company

    For big projects, new construction:

    - Architect

    - Civil Engineer

    - Foundation

    - Asbestos Removal

    - Sediment Control

    - Excavation, Dirt Hauling

    - Interior Sprinklers

    - Stone Work

    Each of those contractors will typically get between 1-4 draws, depending on the scope of the work they have for the project.

    Then there are materials and other non-labor costs:

    - Permits (0-3 transactions per project)

    - Porta Pottys (0-3 transactions per project)

    - Home Depot Materials (3-5 transactions per project)

    - Dumpsters (1-3 transactions per project)

    - Paint Purchase

    - Cabinets/Countertops Purchase (2-4 transactions per project)

    - Flooring Material Purchase (1-2 transactions per project)

    - Specialty Material Suppliers (0-10 transactions per project)

    - Utility/Service Installation (0-5 transactions per project)

    - Private Inspections (0-5 transactions per project)

    - Insulation/Airtightness Tests

    - Appliances

    On top of that, I will potentially write several checks to:

    - Title Company

    - Property Inspector

    - Appraiser

    - General Contractor or Project Manager

    - Interest Payments

    - Utility Payments

    - Tax Payments

    On top of that, I have my general business expenses:

    - Accounting

    - Legal

    - Interest Payments

    - Tax Payments

    - Brokerage Fees

    - E&O Fees

    - MLS Fees

    - Overhead/Office (Supplies, Equipment, Subscriptions, Software, etc)

    - Telephone/Fax/Internet

    - Income from Property Sales

    All of these easily add up to a couple hundred transactions on a large project or new build, meaning many dozen per month.  Multiply that by 3-6 projects going on at once, and that's hundreds of transactions per month.

    Btw, here's a new construction project I tried to document down to every receipt...I stopped entering each transaction about six weeks before I finished writing checks (it just got too cumbersome), but this should give you an idea of the volume of transactions on a typical project (and this one was actually pretty low compared to some other projects):

    http://www.thescottpad.com/expenses-to-date/

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  • Jose Belman
    Real Estate Broker · San Jose, CA · Member since 2016 · 44 posts · 4 votes
    10y

    @Daniel Johnson If your budget alows for an accountant do it right away, it helps quite a bit, let the accountants do what they are good and you focus on deals . If your budget does NOT allow, grab QuickBooks, it will also help and hire an assistant right away, if you do not have one yet. Best of Luck. 

    0Reply
  • Manolo D.
    Contractor · Los Angeles, CA · Member since 2015 · 4k+ posts · 1k+ votes
    10y

    @Simon W. Why can't you? I'm doing what @J Scott is doing, a typical project for me is 1 month, and I am a contractor with employees, and each employee gets paid every week, that creates 4 entries on the net pay a month, each check also has couple of taxes per employee, so that's one entry each (good thing there's QB Import). Now each trip to Home Depot, for small items like a box of nails, next trip to get some glue, each one of those gets one line (not every item per receipt), one foreman goes 3-5 trips a day, each crew has 1 foreman and maybe 4-18 guys, I have 3 crews. So that's 15 employees minimum? You add transactions with my suppliers, about 100 Purchase Orders a month (excluding HD), you add my gas, my employee's gas which I give a weekly budget, add any meal refunds for legit claims. Wait, I'm half way done but I'm already tired of typing. That's already past a hundred. Let's just say compared to a flipper, I'm flipping 5 houses (You can substitute "employees" to "subcontractors") at any given time with a 1-3 month turn-around.

    @Daniel Johnson Try to setup credit with suppliers, most will once they see your monthly transaction. Have a template that will give all their underwriters info so you don't have to fill up all those credit apps or if they insist put "see attached" on all applicable blanks. Once that happens, tell all of those suppliers that PO Numbers are required, they could not bill you if PO # is not present (this applies to home depot as well, my guys can't continue to checkout if they don't input a PO# or project name), this will force most transactions to be self "Class"ified. Now on your QB, have those PO/Project names/Project numbers be under one "Class" as @J Scott suggested.

    Don't get me wrong, Excel is my number 1 software, but I would rather have QB do it for me vs coding everything on excel.

    1Reply
  • Aaron McGinnis
    Contractor · Atlanta, GA · Member since 2008 · 978 posts · 985 votes
    10y
    Originally posted by @Allen Hayes:

    Sorry maybe, I'm confused here, what are you calling a transaction?  How detailed are you breaking out your GL?  I'm really not trying to get into an internet argument over accounting systems. I really just can't figure out how you produce so much volume per project.  Just keying that many entries would consume days, maybe a week even, every single month.  I fixed up a 3bedroom/1 bath house that was had it's plumbing and AC stolen and the bathroom floor rotted out and I couldn't have created 100 GL entries without breaking out every receipt at a line item and every trip by itself. 

    Allen - Absolutely no internet argument, please don't take offense. The internet is sometimes a tough medium for communication, even between industry professionals. I appreciate the fact that you at least have a considered and calculated approach, and that we can discuss rationally. Our solutions are quite different, but hopefully the dialectic will help a new business owner/investor to make informed decisions. 

    I run a design-build firm, which offers construction services to investors and home owners. We also sell cabinetry to anyone who will give us money for it. We also flip houses. We typically have between 2 and 5 jobs running concurrently. 

    Between myself and the 7-8 employees we have any any given moment, it's very easy for us to get 10-20 transactions per day. This includes direct costs, subcontractors, overhead costs, and other indirect costs. We pay these out between checking accounts and a corporate credit card.

    Our office manager does quite a bit of day to day transaction logging in Quickbooks, with an accountant doing the rest two days a week plus month-end reconciliations, quarterly reports, and yearly taxes. 

    In the beginning, I felt like I didn't need an accountant or help and I got by with some spreadsheets that I home-brewed. It was fine for a little while, but as the business grew it got past where I could keep track using simple spreadsheets.

    Ultimately, Excel was a growth nightmare as I couldn't reasonably train someone else to do the data entry and reporting for me, and migrating from Excel to Quickbooks was a nightmare unto itself. 

    Quickbooks is not really an expensive system to set up, even if you get professional help to get your accounts set up and give you some basic training on how to use it. It's easily scalable, and a large number of ready-made growth solutions exist because it's a common software. 

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