All Forum Posts by: Dan V.

Yes, it is recommended that you have your own recordkeeping, not only to capture transactions not processed thru PM such as admin & overhead expenses, owner contribution/distribution, fixed assets, mortgages, insurance, etc, but also it's a good control to make sure all PM transactions are accounted for properly and completely. Also, having your own set of books, you can easily pull data, should you decide to do some analysis on your business. 

@Nacquata Bryson The first step I would recommend, as others already mentioned, is to have separate bank and credit card account for the business and run every business transactions thru them. If you need to invest in more funds, transfer the money from your personal account to your business account then pay using the business account. Do not pay business expenses directly using your personal account (or vice versa), it has to go thru the proper channel. Doing so will save you (and your accountant) time once it's time for you to sort out your business transactions, you will only have to go thru the business account(s) since you know, that's all you've been using to pay for business stuff. The transfer between personal and business will be considered an investment or draw, depending on which direction it went. 

If you cannot avoid using credit card but you cannot open one for LLC, you can open a personal one or use existing personal credit card but make sure the card is exclusively used for the business. 

As far as documentation, mortgage and bank statements can be downloaded online where you can pull them at your convenience, all paper documents, take pictures or scan as soon as you get them and save them in a central location (google drive, dropbox, etc.). Separate the documents at least by tax year. 

I know there's more to it but these will get you to a good start. Hiring a professional will also put you on the right track. 

@Kishan Patel As Aaron mentioned, if it goes with the property then it will be part of the cost. By the way, flipping income is treated as ordinary income, not capital gains. 

@David Pham The entry for the purchase of the property should have been

Debit: Cash $20K

Debit: Building $100K

Credit: Motgage Payable $120K

Of course there could be more to the entry to account for closing costs, earnest money, taxes, etc.

The $50K improvement will be accounted for as you spend the money on the rehab. I recommend using a separate account (construction in progress) to tack the progress then moving it to improvement account once complete. 

Debit: Construction in Progress $XX

Credit: Bank or Credit card (whatever the fund source) $xx

Once the construction is complete (assuming you spend $50k total): 

Debit: Building Improvement $50K

Credit: Construction In Progress  $50K

If you are leaning towards Quickbooks, online or desktop will have enough features for your accounting needs. 

Desktop advantages: May have a few more custom features, and lower cost. Disadvantages: If you are planning to use an external accountant, it hassle to transfer the data back & forth and also since your data is housed in your computer, there's a risk of losing data in case your hard drive failed. 

Online advantages: Better accessibility (there's an app too) for you and your accountant, lower risk of data loss. Disadvantage: Higher cost. 

So really, it's going to be, cost versus accessibility. 

@Account Closed Thank you for sharing, these are great. Question on the invoice, are the custom fields (Move in, security deposit, rental amount & lease expiration date) in the invoice automatically populated or do you have to type them in manually whenever you create an invoice? I know you can set up as recurring but I'm curious if the custom field is at customer level or if it's at invoice level. 

Also, for the benefit of those interested in using desktop, and use the fixed asset management, what version (Pro, Premier, Enterprise, etc) of QB desktop do you use?

The functionality and idea behind QB Desktop and QBO should be the same, however, the layout and some terminologies are different. If you are able to find resources on how to set it up in QB desktop, then you should be able to mirror it in QBO (ie. setup address as a customer, property as class, setup recurring invoices, track 1099, etc.). 

By the way, in QBO, you can actually change the customer label to "tenant" (go to gear, Company settings, under Company tab, look for customer label) to make it more appropriate to your business. QBO is gaining its popularity for REI so eventually, you will find online tutorials specific to the industry in the near future.

@Tahra Wright Yes you can. QB can be customized to fit most business industry including flip. You don't have to setup separate QB account for each flip, but rather setup each flip as Class. You can then run reports by property or a total for the company. Also, accounting for flip is different from buy & hold or wholesale, so make sure your process and procedures are set up properly. 

@Jai Coward For rental property business, I think QBO has enough features for accounting purposes. IMO the main advantage for QB desktop is the cost since you will only pay one time and can be used for as many companies you want. Disadvantages is the possibility of corrupting the file so make sure you backup (external) your files regularly, and if you are planning to use remote bookkeeper, it's more difficult to provide access or transfer files. 

@Account Closed  Actually, QBO Plus can track, prepare and e-file 1099, set up budget, however, it does not track mileage which I don't see it as big deal since you need this only once a year and apps are available too. As far as fixed assets, each account in QBO has a field for description so any property information can be entered on that field. 

It is recommended to have separate QBO subscription by entity since you are only allowed to enter one company name. However, if you like QBO but really wanted to save money, there is a workaround, that is Location. Location is a feature in QBO similar to class, with one limitation, it is available at header level only, which means you are allowed to assign one location only in each transaction. You can set up each entity as a location and each property as classes, the downside will be more work (since you will need to fill out additional field for every transaction) and if you don't have a good system in place, it could end up in a mess. You can run a report by Location, or use it as report filter. 

Another alternative, if you want to keep QB desktop but do not want to provide remote access is to use a file sharing/hosting service like Qbox which is QB file compatible. 

@JC K. If you are looking for ways to track/calculate principal and interest payments, you can use loan amortization excel template, plug in the principal amount, loan date, interest rate, and the number of years to pay and it will show you the monthly breakdown/details you need to track the loan. This will be your main reference for your loan numbers.

To track it in an accounting software, any software will work. You will need to set up the loan principal as a liability account and record the monthly payment, the principal portion will reduce the liability account and the interest portion as an expense. It's a good practice to reconcile your book balance with the amortization schedule balance periodically to make sure they're in sync.