Bookkeeping and Cash Flow Questions

[Dean Valadez]

Bookkeeping questions:

I purchased a property with cash flow, according to my calculator, on day 1, but knew it was a value-add opportunity. Since the acquisition, I have done upgrades. Technically, I know that with the upgrades, I am putting money into the property and any cash flow is already used up before I even receive the rent. About 6 months worth of cash flow was negated by the upgrades. More so when I do more upgrades. My questions are:

1.) Are the anticipated upgrades counted as 'renovation' costs in my calculator, thus the property still cash flows, but the COCR takes a hit, or

2.) Do I not have cash flow for those first 6 + months?

If 1.), then do I still pay myself the cash flow amount, simply to put it back into the bank account to pay for the upgrades? That just seems like shuffling money around. Does that have a positive or negative tax implication? If I do pay myself, then when I need the money again to pay for upgrades and I transfer money from my personal back to my business, does that pierce the corporate veil (I have an LLC set up)?

If 2.), I assume I just don't pay myself?

Since I am a newbie to this, I am curious as to how normal this situation is, with value-add properties and putting money into the property. A few local investors I talk to say it is normal (for them), but I am looking for other input as well. 

[Jamie Banks]

I would recommend using a real estate bookkeeping software that will help you with a lot of these questions. Baselane is the software I use because it's created for real estate investors. When you categorize each transaction using the software you can then create statements to understand your monthly or even yearly cash flow. 

I personally reserve 15% of my rent per month for maintenance, capex, and vacancy. The cash flow left over after reserves, my mortgage, and other expenses is the cash flow that I "pay" myself / my business.