Bookkeeping Best Practices?

Question

Hello BP Community! I have recently closed on not just my first, but second multifamily property purchase within the last two weeks! These properties are being treated as out of state investments, and i have hired local property management to look over them. There are a total of 30 units inside four different LLC's.

The two PM companies are using Appfolio software and I have heard the bookkeeping features are pretty good, as long as they are good at inputing and using the tools. My question is should I invest in a bookkeeping software like Quickbooks for keeping the finances outside of their scope of responsiblity nice and tidy, and if so, what software is recomended and why?

What are some things to consider NOW for future scalability? What types of softwares are flexible and modular? What are some mistakes made that you wished you could redo?

Nathan McIntire · Answer

@Brian McCombs Congrats on being able to double your portfolio. Stessa is user friendly and fairly inexpensive. I know several investors who use this software to manage their real estate portfolios.

Kyle Smith · Answer

Hi @Brian McCombs and congrats on your new acquisitions. I don't have experience with Quickbooks, but I've been using Stessa since last year and it interfaces pretty well with appfolio. It helps keeps me organized by automatically uploading the documents any of my PM's enter on their end through appfolio.

Anyhow, hope this helps. Happy to chat more if you'd like. Good luck!

Drew Sygit · Answer

Our goal is to provide our owner clients with monthly and year-end statements that they can just take to their tax professional.

Of course, they will have to add in any expenses they pay themselves and don't run through us.

Evan Polaski · Answer

@Brian McCombs, I would talk to your accountant and find out what they prefer, if anything. Appfolio might even have an API with Quickbooks that will export the records to Quickbooks automatically.

I use quickbooks for my 2 rentals (used to be 9) and I self manage.  Was not too hard to keep accurate books and my accountant had access to access, review, ask questions, etc.  So it ultimately saved me money, since I wasn't having to pay to have my accountant double enter items.

I am curious though how 2 properties are 4 LLCs, that seems overly complex, and depending on how the LLCs are structured, it sounds like the PM reports won't really work anyways, unless they are treating each LLC as its own "property", independent of the actual properties.  Also, depending on how these are setup, you may be creating schedule Cs for the LLCs or Schedule Es for the properties on your taxes.

Brian McCombs · Answer

Stessa worked really awesome for the rest of 2021. I actually was able to double my portfolio before end of year (60 units now). For what ever reason, Stessa does seem to have glitchy connections to my smaller regional banks where I hold the operating accounts. Are you or anyone you know that uses Stessa experiencing the same connection issues? Their technical support team seems to be severely under staffed, and slow to respond to my requests for updates. My PM's are still able to input their statement information through their API and external connection and that still works great. Stessa seems to be really well integrated with Appfolio as you said. I am almost at the point where I am ready to disable the bank connections and just import to QIF files I download from the banks at the begging of each month for the month prior and then accurately categorize by type.

Daniel Hyman · Answer

@Brian McCombs

Congrats on the new purchases. You'll definitely want to consolidate the transactions on to some accounting software at your scale. All bank accounts, cc accounts, PM statements, and mortgage statements should be consolidated on a separate set of books. Just keep in mind that you'll want separate books for each LLC.

Evan Polaski · Answer

@Peter Koch, I agree that a PM may not want to actually link the accounts with two way traffic, but there are APIs (I don't know if Appfolio and Quickbooks have the appropriate ones) that allow for data from one software to be pushed into another, without the second being able to access or write to the first.

Peter Koch · Answer

I don't think that Brian's PM's can and would want to connect their Appfolio accounts with Brian's Quickbooks account. As Drew said, most likely you have to enter your financials from the monthly owner statement and/or yearly income statement into your quickbooks yourselves, add the expenses that you don't run through your PM's to calculate your full and final net income for your properties.

Wes Short · Answer

@Brian McCombs heard good things about Quickbooks for single family portfolios but not sure about larger unit counts and properties.

One aside that I would note is make sure you separate and classify expenses as general maintenance vs. capital expenditures. Some PMs lump them all into general maintencae. This is huge when preparing for a sale, which sounds like is far down the line, but it makes a big difference when marketing for sale if those expenses are above NOI or below.

Just a quick tip! :)

Bookkeeping Best Practices?

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