How to Handle Business Banking / Bookkeeping?

Question

Hi there!

I'm a new REI and am closing on my first rental property (a SFH) today. I'm also closing on another in a few weeks. I'm planning to acquire 20 properties over the next year and a half or so and have funds set aside for it.

The properties I'm purchasing are all turn-key, and all have tenants in place and are post-rehab.

I'm financing these properties at 20% - 25% each, 10 will be in my name, and 10 in my wife's name. My plan is to take all cash flow from the properties and use it to aggressively pay down the loan with the least balance, eventually owning them all free-and-clear.

With that said, I'd like to structure this in as simple a way as possible. Right now, I'm only purchasing homes in Indianapolis, so I created an LLC in Indiana for holding properties. I live in CA. I went ahead and created a business checking account for the LLC, and my goal is to keep the expenses/revenues/etc. as separate from my personal as possible to make things easy to track (and for tax time).

Here are my questions:

- What sort of software should I be using to keep track of these properties? Right now I have everything in a spreadsheet, but that seems like it won't scale very well and might become a lot of work. All of these properties will be under one property manager (so far), if that makes a difference.

- Even though these houses will be in my name or my wife's name (and not the business), can I pay for expenses from my business account and treat the homes like business assets, even though I'm technically the owner and not the business?

- Should I attempt to transfer the title of the homes into the company's name after the loans are seasoned? Or is this a bad idea? I know that a bank can call the note if this happens, but I'm wondering what other people do.

- Should I find a bookkeeper to help keep track of expenses in the business (repairs, etc.)? Or is this something the property manager will typically do, since they're tracking those things anyway? My current PM uses AppFolio, if that makes a difference.

Thank you for the guidance!

Renee Fulcer · Answer

Question #1 - I like Quickbooks.   Every property is a separate Class. Track Expenses by Class, Tenants are customers.   My accountant gets reports at the end of the year and it's all quite painless.

#2 Some properties are in my name, some in my husbands name.   One business checking account takes in the money and pays the bills.  I have security deposits on some of my houses (I think we will transition to move in fees...) and those deposits are in a separate savings account.

#3 I would leave everything in one personal name or another, never both and not in a business name until/unless you have to.   Going "commercial" has different rules.  Loans can get more complicated, insurance gets more expensive, and in my case in IL,  some things must be handled by an attorney once you go Commercial/LLC (like evictions).

#4 Bookeepers are a personal choice.  If balancing a personal checkbook is something you are good at, doing your own Books for rental property isn't that much different.   Most of my bills are mortgages, utilities, property management expenses, taxes.  I probably spend 3 hours a week on books and I have 13 SFH + 1 11 unit.  For me that's easy to handle but Books are what I've done for the last 20 years and I have 3 hours a week to spend on it.

Dan V. · Answer

@Randall Degges Congratulation on your first rental property! To answer some of your questions:

- Quickbooks is pretty popular here, and if set up right, it should be able to give you decent reports to view the financial performance and health of your business. You can go offline version if you prefer to do it yourself and cheaper, or online version if you wanted to hire remote accountant (more options), more convenient but costs more.

- Yes, you can claim expenses even though the properties are in your name. You will be reporting income so you are entitled to expenses. The tricky part is to determine what can or cannot be expensed, and the timing of recognition, so it is advisable to talk to CPA/accountant familiar with the industry.

- If you are not familiar with bookkeeping, I would suggest you hire an accountant/bookkeeper who specializes in REI (don't go cheap). Property managers will only account for the operation side of the business, so in order to track everything, you will need to have your own sets of books. Few examples not usually tracked by PM are mortgage payments, taxes & insurance, admin expenses, depreciation and any other expenses paid directly by you.

Segregation of funds is also very important, so setting up a separate account for the business is a must. Do not comingle funds (personal & business), otherwise, it will cause you a headache and more money.  Good luck!

Ryan Ragano · Answer

Randall,

On your question as to the bank having the option of calling the note..this scenario is not what it appears. I often see people warn others about this risk and it is not what it is made out to be. In the event the bank does call a note because the title has transferred to a different party, they do not immediately insist the entirety of the loan be paid off. It can still be paid off in installments even if this scenario occurs.

I would need to know more information as to your specific situation in order to better advise on the pros and cons of moving your property into an LLC.

In regards to bookkeeping software, look at the Quickbooks Pro package. I find most RE Investors are well suited to what the product offers. Sometimes they are even comfortable going one product cheaper than Quickbooks Pro.

Mihir Bhimaraju · Answer

1) As most of them suggested, I recommend QuickBooks. This comes with a fee but it's the most widely used s/w. You can also try using MINT and connect it to your checking account. This will help you keep track of your expenses and you can categorize them by the property as they show up.  I've also come across Stessa, I haven't used it to the full extent where it even shows cash flow, but I've tried using the free version and it gives an overview of your portfolio. I find that cool. If you're using the same PM for all your properties, find out if their software can provide a property wise view of all the expenses. You can also hire a bookkeeper to export those expenses.

2) Just be sure to not mingle personal and business funds. A CPA has better authority to answer this question.

3) As long as you're making the payments, banks should be okay with you transferring the title. A lot of investors already do this.

4) If you personally don't want to deal with tracking expenses, then you can hire a bookeeper.  I've typically found they use quickbooks as well. You can also look up income/expense template online and start working out of that. It's pretty simple once you get the hang of it and willing to spend time every month.

Randall Degges · Answer

Bump! Would love to know if any of you have an opinion ^^

Kathryn Dunnivant · Answer

@Randall Degges, this is a great question! Following!

How to Handle Business Banking / Bookkeeping?

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