Properly accounting for a BRRRR Cash out Refi in Quickbooks?

[Nicholas Lohr]

I did the BRRRR strategy complete with the rehab and cash out refi. I currently have the old loan and all the improvements reconciled in quickbooks but what I don't have is the new loan and the large amount of cash out refi money reconciled in Quickbooks. Any tips on how to properly incorporate everything together?

[Linda Weygant]

You'll need to set up the following new accounts:

Asset Account - Escrow at new company (I set my escrow accounts up as bank accounts)

Liability - New Mortgage Payable.

Let's assume the following balances before the Refi:

Escrow account $500

Mortgage Payable - $100,000.

Long Term Asset - Property - $110,000

Let's assume the following balances after the Refi:

New Mortgage balance - $350

New Mortgage Payable - $130,000

Cash out $28,000

Closing Costs and Escrow - $2000

As you go through the Settlement Statement, you'll pull all of these items out and put them in the following journal entry:

Mortgage Payable -      debit    $100,000

New Escrow Account - debit   $        350.00 (You'll find this under the settlement statement, usually labeled as so many months of prepayment of insurance and property taxes)

New mortgage Payable - credit -                       $130,000

Cash/Checking Account   debit   $28,000

Loan Amortization Costs -       debit           750.00           This should be only a fee paid as a percentage of the loan.  This will be a fixed asset and will be amortized over the life of the loan.  If you refinance in the future, any unamortized balance will be immediately deductible at either subsequent refinance or loan payoff.

Property Asset -  debit    $900.                                       This is all the other closing costs.  Title fees, appraisals, etc.  These are not deductible.  These are added to the basis of the property and depreciated over 27.5 for residential or 39 years for commercial.

You'll notice that you still have a balance in your original escrow account.  This is because the old loan company will usually refund that to you within a few weeks after the closing.  When you get that check, you reconcile your balance to that check received.  When you record the deposit in your checking account, the offsetting entry is to this escrow account so that the escrow account is $0 after the deposit.

Always make sure when you do your monthly bookkeeping that you your mortgage payments are broken out between principal (the loan liability) mortgage interest and escrow.  Any time there is a payment from the escrow, record it out of the escrow account as though it were a check written.  Same with interest deposits to your escrow account - record it like a deposit.