Best way to run financial operations for landlord business
Real Estate Agent · Newark · Member since 2014 · 55 posts · 31 votes
Hello BP'ers
Just wanted to gain insight on how you run your rental business in regards to finance operations.
Do you accept rent payment electronically?
Did you open up a separate bank account to track income/expenses?
Do you pay the mortgage with the same account as you receive rental income?
Thanks in advance! First rental property. Next one coming soon ;)
The Setup process takes time when using an Excel Spreadsheet, or an Online program, or a Desktop Version.
It takes time to setup a business, and that includes entering in all your data into a Software Program PERIOD!
Quickbooks Online is not a good program for Landlords. We have tons of money invested into our business and we have lots of houses. If we only have one house at this time, you still need a good software program that will grow with you as you grow. The purchase of our houses are in the tens of thousands of dollars, so why do we think all we need is some inky dinky software program. A money lender wants to see PROFESSIONALISM, so we need to think outside the box called "Cheap" and invest in other things other than houses.
QuickBooks Pro Desktop has everything we need as landlords. It allows us to Customize QuickBooks to fit what we want to see and know as landlords.
It contains a Fixed Asset Items List which allows YOU to enter in everything you need to know about each and every property you have. Square feet, purchase date, land description, when it was sold, type of house, etc., etc., You tell QuickBooks what you want to see and know, and QuickBooks will do it for you.
You will have one Business Checking Account
You will have a Security Deposit Trust Fund Bank Account
You will Bill your tenants and receive payments for rents, late fees, and service you provide to them via an Invoice and then a Deposit slip to the Bank.
You will link every transaction you do to each individual property, which includes your Office. This will keep a running total of how much money you spent on each property, each building (including your office) and how much income you made per property, giving you your bottom line.
Once the setup process is done, it only takes minutes to keep track of your income and expenses.
With one press of a key you can run a Profit and Loss Report to see your bottom line, and you can run a Profit and Loss Report per class to see how much money each property made you or cost you. You can run a Balance sheet any time to see what you are worth today, or yesterday, or last year.
It just doesn't get any better than this.
Nancy Neville
Yes, start a separate business checking account. All income and expenses flows through that account. Get a debit card for that account, and ONLY use that debit card for rental related purchases. For now, track all your income and expenses on an Excel spreadsheet. Save all rental related expense reciepts, and force yourself to have the discipline to enter expenses into the Excel spreadsheet as they occur. This will make tax time so much easier. If you choose to accept rent electronically, use this account as long as tenants cannot make withdrawals from this account. (Some LLs use a separate account to collect rent that they then transfer all the money out of that account each day. Your bank will tell you the best way.)
I believe there are some downloadable Excel spreadsheets in the Forms section of Bigger Pockets. If not, someone will jump in and share one.
When you get multiple properties, consider switching to a real book keeping software like QuickBooks or one of the integrated accounting/property management software products.
@Austin Smith - I would open up a quickbooks account for the accounting/ finance side of the question. QB online or xero is less than 30 bucks a month for the simple package and can save a boat load of time at the end of the year. You will also be able to run helpful financial reports easily.
Open up a different bank account for your entity - it will help keep personal and business separate which will also save you a hassle at the end of the year. There is nothing worse than having a bunch of transactions on a bank statement that you don't know what they were for.
I pay my mortgage from my business account which is the same as the account I get rental income from. I prefer to keep it simple and only have one account so I don't have to worry about transfers back and forth.
The Setup process takes time when using an Excel Spreadsheet, or an Online program, or a Desktop Version.
It takes time to setup a business, and that includes entering in all your data into a Software Program PERIOD!
Quickbooks Online is not a good program for Landlords. We have tons of money invested into our business and we have lots of houses. If we only have one house at this time, you still need a good software program that will grow with you as you grow. The purchase of our houses are in the tens of thousands of dollars, so why do we think all we need is some inky dinky software program. A money lender wants to see PROFESSIONALISM, so we need to think outside the box called "Cheap" and invest in other things other than houses.
QuickBooks Pro Desktop has everything we need as landlords. It allows us to Customize QuickBooks to fit what we want to see and know as landlords.
It contains a Fixed Asset Items List which allows YOU to enter in everything you need to know about each and every property you have. Square feet, purchase date, land description, when it was sold, type of house, etc., etc., You tell QuickBooks what you want to see and know, and QuickBooks will do it for you.
You will have one Business Checking Account
You will have a Security Deposit Trust Fund Bank Account
You will Bill your tenants and receive payments for rents, late fees, and service you provide to them via an Invoice and then a Deposit slip to the Bank.
You will link every transaction you do to each individual property, which includes your Office. This will keep a running total of how much money you spent on each property, each building (including your office) and how much income you made per property, giving you your bottom line.
Once the setup process is done, it only takes minutes to keep track of your income and expenses.
With one press of a key you can run a Profit and Loss Report to see your bottom line, and you can run a Profit and Loss Report per class to see how much money each property made you or cost you. You can run a Balance sheet any time to see what you are worth today, or yesterday, or last year.
It just doesn't get any better than this.
Nancy Neville
@Account Closed I was talking more about when you are starting off, rather than have no accounting program at all, you can get quickbooks online which is better than nothing. Obviously desk top is much better for real estate at this point, but if you are just starting off, it may be hard for someone to drop a couple hundred dollars on the desk top version if they just have one house and cash is tight. When the time is right, as you probably know, the transfer from QBO to desktop isn't very difficult, I just did it the other day for one of my entities.
Thanks all for your insight definitely helpful!
Michael, if an investor doesn't have enough money to invest in their business on things they need to purchase in order to run their business, then they shouldn't be in this business.
This reminds me of a tenant, who wants to rent a property, but doesn't have the Security Deposit, and says to me, "can I pay it in a few weeks, but move in now?" What do you think my answer is? Next Please !!
If the tenant doesn't have the full move in money in order to move in, which includes the Security Deposit, then they will never have the money for the Security Deposit EVER.
Part of your plan for being a Landlord (Investor) should entail, office equipment, phone, desks, computers, file cabinets, software you will use to keep track of your business investments, and a ton of other things. Being a Landlord is more than buying a house !!!!!
You need to know your State Laws, Housing Codes, Tenant Laws.
You need to know how to make your properties have curb appeal.
How to do an Open House
What forms to use, Like Lease Agreements, (What is the difference between a Lease Agreement and a Month to Month Agreement) Evictions Notice, when to send out an eviction notice, what to do and not to do. What to say in an ad and what you can't say in an ad.
There is a lot to know before you become a Landlord.
Where can you go to get this information? You need to SPEND MONEY. You need to attend Landlord Associations. Purchase every book on landlording that is known to man. (Before I became a Landlord I spent about $1,000 bucks on books and software programs, and believe me most of them weren't worth the money I spent on them; but each one had something that I benefited from. Maybe one chapter. Maybe one paragraph. But most times I had to find the answers by experience and common sense).
So there is no such thing as feeling sorry for a first time beginner in this business, having no money to spend on the proper equipment they need to have in order to make money.
I feel strongly about this topic. So forgive me if I am a little harsh.
But I say it because it needs to be said.
Remember, you need to SPEND MONEY in order to MAKE MONEY !!!
Nancy Neville
@Account Closed while I see your point on investing in your business, I don't think that if you don't have the money, you shouldn't start a business. That eliminates a ton of investors from the pool if you needed money to get into the game. You have to start from somewhere, and a lot of investors don't have capital at the beginning to put into the company (which is why some of the most successful companies in the world started from garages). However, I do agree with you that as your company grows, you should be investing in your business. Not everyone is fortunate to have that money upfront though.
Opening any business is risky, which is why some of the most successful businesses started from broke young kids that found a way to make it happen and invested in their business as it grew to improve upon their processes. I would be willing to wager that Facebook, Google, Apple, etc. didn't have the best bookkeeping software until a few years into their venture.
Not saying bookkeeping isn't important (I am an accountant for a living) but most small companies find a way to bookkeep, or do anything, cheaply (but functionally) until they are at a good size in invest. Which is why I don't think starting with Quickbooks Online is the worst idea if someone has more important expenses to pay off at the time. It is functional and gets the job done until you are at a point to grow.
While researching is for an absolute must before getting into real estate, information is available at libraries, through podcasts, etc. for free. Obviously you can get information by buying it from sources but you can get it for free if you are in that position - you just need to work a little harder.
To be cliche - Kiyosaki made a good point that people who are broke find a way to make things happen because every decision is more crucial to the survival of the company. You don't necessarily need money to make money, you need information, communication, and action while learning from your experience.
I don't feel sorry for anyone that cant afford the best software, office, etc. I respect them for grinding it out to make it happen and learning in the process. Way better than sitting on the couch and saying they don't have enough money so they can't start a business.
It is much more effective and efficient to use a property management software package to run your financials than it is to use QuickBooks. There is at least one that is free for a small amount of units (e.g. Rentec Direct). If you have a little more money one can invest in a desktop property management software that can be moved to online when you want (Rent Manager). Both of these are better for small landlords / property managers than QuickBooks.
Property management software was built for managing rentals. QuickBooks was not. It has to be "customized" just to use for property management.
It is much more effective and efficient to use a property management software package to run your financials than it is to use QuickBooks. There is at least one that is free for a small amount of units (e.g. Rentec Direct). If you have a little more money one can invest in a desktop property management software that can be moved to online when you want (Rent Manager). Both of these are better for small landlords / property managers than QuickBooks.
Property management software was built for managing rentals. QuickBooks was not. It has to be "customized" just to use for property management.
Agree with @Cornelius Dudley. Quickbooks is not made for property management. I use QB for my business but not for managing my properties. PM software does so much more then accounting. To echo the above statements, keep bank accounts separate from personal. We accept online rent payments which makes it so much easier for the tenant as well. Good Luck