Excel, quick books or ? for REI financials?

Question

My list of properties has more than doubled this year. I was tracking expenses with excel spreadsheets. I am hiring a CPA to do taxes this year. He recommends getting quickbooks. Is it worth the monthly fee, time setting it up and learning a new system? Is there something better I should consider?

Michael Plaks · Answer

@Guy Yoes

Bookkeeping has 3 purposes:

• monitoring your business
• taxes
• presenting financial statements for lenders

There is no system that can perfectly accomplish all 3 of these goals, because each one of them requires different information. So you have to choose on which one to focus.

With Excel, you basically record your cash flow. It is not enough for tax preparation, and your CPA will need more information. If Excel gives you what you need as an investor, and your CPA accepts it for tax preparation - stay with it.

One of the main issues with using Excel for bookkeeping is that everything has to be entered manually. Yes, you can import bank statements into Excel, but there's still substantial manual labor involved in organizing these records.

A step up from that is an expense tracking app: a cloud-based system that links to your bank accounts. You can have your income and expenses pulled daily from your bank, and you can automate the organizing process to some degree. You will also have a backup of your photographed receipts and many other features. There're tons of expense tracking apps on the market, just google them.

The next step is an actual accounting system. In addition to simply tracking expenses, it allows tracking of tax bases, generating financial statements etc. Some systems calling themselves accounting systems, for example the popular free Stessa, are not full accounting systems. They do not support double-entry accounting: you do not have to deal with debits and credits, but you also do not have actual financial statements such as Balance Sheets.

QuickBooks is the #1 full accounting software choice for accountants, however we know how to use it. Our clients don't. Contrary to Intuit's claims, QuickBooks is not ready to be used by real estate investors without customizing its setup. While it can track tax bases and produce Balance Sheets, it requires special setup and knowing how to do it. This is not something you can learn from a 5-min YouTube video.

So chances are that, unless your CPA sets it up for you and trains you, you will be using QuickBooks as an overpriced expense tracking software instead of its true purpose as a complete accounting package.

This warrants a more substantial discussion with your CPA about how he expects you to use QuickBooks. Simply saying - go buy it and learn how to use it is no good. I can go buy all the fancy knives and cooking equipment, and I still won't be able to prepare a decent meal. For my level of cooking skills, one stainless pot and one knife from Walmart is plenty.

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Michael Plaks · Answer

I did not say that QuickBooks was not for REI. I said it's not for REI without customization and training. All of these nice features you're describing are not just something you can start using right away. The key in your post is one word: "OUR clients..."  You're an accounting pro, and you set it up for your clients and assist them. So do we for our clients. In that case, QB is fantastic, but it comes with a significant investment of money and learning time.

For a solo investor with a small rental portfolio, $70/mo for the QBO Plus version (to use classes) is significant, and he won't be able to use QB anywhere close to its full power. How does someone enter closing statements into QBO without special training?

We have seen, and I'm sure you have, hundreds of DIY implementations of QB/QBO. They range from total garbage to a glorified expense tracking, with very few exceptions. I stand by my statement: correct use of QB/QBO in REI requires professional help.

Gita Faust · Answer

@Michael Plaks Your views and suggestions are to the point. Sorry if I said something negative. We are all good - this was just my opinion.  Contrary to Intuit's claims, QuickBooks is not ready to be used by real estate investors without customizing its setup.

Guy Yoes · Answer

@Michael Plaks

Thank you all for your comments!  My cpa is willing to do the set for a reasonable fee. However. The comments provided have me looking at other options.  As I said in the intro it’s not just the cost but time involved and my learning curve. You have given me much to consider. Thanks

Guy Yoes · Answer

@Michael Plaks

Thank you very much for your response.

Gita Faust · Answer

Take one step at a time - from excel - QuickBooks and property management software. When selecting a property management software, what is the automation you are looking for? Only the most expensive one may help you reconcile a bank statement, credit card statement, loans, cost segregate and review Balance Sheet by Property.

When someone says one software is not for the real estate industry and you are taking the word for it. Start with making your list of wants and needs. The Internet and YouTube have tons of videos but only offer a teaser and not a full solution. We say QuickBooks is the perfect solution for real estate and property management. The only thing I do not see is that does the advertising for you. You can get lender reports, Profit & Loss and Balance Sheet by each property, receive ACH and CC payments, automate your bill payment and the list goes on. Oh and not to forget to get a list of lease dates for each payment. Our clients manage 1000+ tenants in one QuickBooks file.

Basit Siddiqi · Answer

@Guy YoesSince you talk about a monthly fee, I assume you are talking about Quickbooks Online instead of the desktop version.There are considerable differences between the online and desktop version. I would research and have a discussion with your accountant if the desktop version would be better for you.The desktop version is a one time payment that is around $200-$300. The online version cost's can certainly add up.Good luck!

Eamonn McElroy · Answer

@Guy Yoes

If all of your rental RE assets are reported directly on your 1040, Excel is fine.

If the properties are held by an regarded tax entity other than an individual, QuickBooks is strongly recommended as your CPA will need a balance sheet to calculate various bases.

Excel, quick books or ? for REI financials?

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