All Forum Posts by: Ricky A.

@Lawrence M.

(Income) Taxes are paid on net income, so if this is simply a pass-through, the "income" and the "expense" will net to zero.  That is, the income is technically taxable, but it's exactly offset by the deductible expense, so the net effect is zero.

There are a couple ways you could account for it--in both cases, you'll record your payment to the municipality as an expense.

1. Record the tenant payment to you as income (e.g., Billable Expense Income as you suggested).  This will result in a positive income line that offsets your positive expense line.  Net difference = 0.

2. Record the tenant payment to you against THE SAME expense account you use to record your payment to the municipality.  This will result in the expense account line zeroing out.  Net difference = 0.

In the end, it doesn't matter which way you choose to account for it, so I would do the one that makes more intuitive sense to you.

@Sarah Pelton, I looked into this earlier this month for a new LLC I'm setting up, and Bluevine is what I decided to go with for my particular needs (though, I still need to open the account). I was mostly comparing it to Relay (which I heard recommended in one of the BP Bootcamps), but I also looked at some other online banks that were recommended on "top" business checking account lists. (I wanted online versus local because online banks tend to have better fee structures and convenience features and because I don't foresee my banking relationship being instrumental to satisfying my financing needs).

For me, the deciding factors were:

- Ability to write checks (locally): From what I could tell, Relay has a payment service but doesn't allow you to write checks yourself. My gutter guy wants to get paid as soon as the work is done, so this made Relay a no-go for me.

- Decent wire fees:  I invest in syndication as well, so I do a number of wires.  Bluevine is cheaper than local banks (though not as cheap as Relay).  And heaven forbid I have to physically walk into a local bank just to do a wire like I had to do recently.

- Ability to earn interest:  I'll have cash in my account for reserves and cash sitting between investments, so a bit of interest income doesn't hurt.

I agree with the other comments re: getting input from your CPA or accountant regarding the need for multiple checking accounts.  If that's the way you need to go, Relay may be a better option because it allows up to 20 individual checking accounts.  Lots of checking accounts may get cumbersome, but needing multiple credit cards will be even worse!

Regarding credit cards, there are probably lots of good comparison charts for "best business credit cards" that can help you compare vis-a-vis your particular needs.  I generally recommend getting a rewards card if your spending is high (say, above $50K per year) or a cash-back card if your spending is low.  I prefer rewards cards because, even though you're spending deductible business expenses, you may be able to redeem the points for personal rewards that wouldn't be deductible...this is a form of pre-taxing your lifestyle (PLEASE: consult your CPA).  However, if your business spending isn't high enough, it's not worth waiting years to build up a meaningful reward, so cash-back or statement credits makes more sense.

No, not really. Once the HOA is up and running, it's very unlikely that they would amend their restrictive covenants to bake in a special benefit for someone. However, the original developer is typically the one that creates the HOA and the initial restrictive covenants, and they have 100% control at that time. Honestly, I've never actually seen what I proposed done, but I think it should be doable in a lot of original build-out cases (as long as there aren't local or state laws that don't allow a separate "class" of units within the same HOA).

@James Lauer

Without digging in to confirm/refute your numbers, on the surface, the deal looks good to me.  The areas where I would really pressure test the assumptions would be:

- Rental Projection: Make sure you feel great about them. Triangulate between multiple sources like 3rd party sources like AirDNA, Rabbu, and 3rd party PMs as well as manually looking at rates and occupancy of competitive STR listings.

- Bank Loan:  Make sure you can actually get 460K at 20% down at whatever rate.  The bank may look differently at it because of the seller 2nd and/or because that seller note is interest-only and/or because it balloons.

- CapEx / CAM: A few things...1) true CapEx might be low if you're only having to cover big things INSIDE your unit like appliances, major furnishings, and (maybe) HVAC, but make sure it's enough. 2) Short-term HOA items should cover CAM (common area maintenance) items like landscape/snow, but if they have underestimated, you'll see a higher HOA fee very soon. 3) I don't trust HOAs to adequately save for long-term HOA items like major building fixes and replacements, so depending on your intended holding period, you may want to account for these by allocating more to CapEx.

With the room in your current numbers, even some changes in these will probably still result in a good deal.  

PRO TIP: With all the anti-STR activity, if the seller is the one creating/incorporating/organizing the HOA (or if the seller still has control of the HOA), have part of the deal include that both of your units be "guaranteed" to be able to be used as STRs (as long as municipal ordinances don't specifically forbid it). That is, have the incorporation/organization docs specifically state that the HOA cannot restrict your units from being used for whatever rental purpose. Have it at the unit level not the owner level, so that future owners can enjoy the same benefit. That will make your units far more desirable than the equivalent one next door if the HOA ever tries to limit STRs.

Has anyone mentioned insurance/liability yet?  Yes?  Well, let me mention it again.  

I would walk through the exact set up in excruciating detail with my insurance agent and get their feedback regarding how to best structure it to limit my liability.  I'd have questions like:

- Can I (even) insure myself against liability for renting (or facilitating rental of) a boat that I don't own?

- What liability do I have if the owner of the boat doesn't have proper or adequate insurance (even though he assured me that he did!)?

- What liability do I have for allowing a boat I don't own docked on my property (that I happen to be renting to 3rd parties)?

Hopefully, you have a good insurance agent who can knowledgably assess your true risk.  Best case is that he's also the agent for the neighbor, so he's seeing and managing the risk from both your sides (which would provide adequate but also balanced advice).

Personally, given my risk tolerance, I'd want to be the actual rental contract to be between the neighbor/owner and the guest, and I receive a commission.  That way, the risk liability could be contractually between the guest and the neighbor.  The commission could still be 50% (because the neighbor doesn't have a business without you), and you could still facilitate the transaction (i.e., provide the docs so the neighbor isn't understating the revenue).

I think that's too complicated given that it's the day before, so the chances of it being booked by another guest are low.

I think you have a very generous cancellation policy, so you could go either way.  

Part of you decision  may be the number of reviews you already have.  If you don't have many right now, a negative could be a big hit so refund it.  $530 saved won't compare to the $$$ lost if your average rating is pulled low because of one bad review.

However, if you already have enough reviews that one negative won't affect the average much, enforce your policy...it's already very generous.  Doing this, I would play the sympathy card of being a small business not able to easily absorb the late cancellation.  Apologize, apologize, apologize.  Temper it with something like "That's why I have a generous cancellation policy...because I can usually re-rent it within 5 days, but I simply can't the day before."

Another alternative is what (at least) one of my PMs does.  They never give refunds.  They stress, stress, stress that the only way a guest will ever get their money back is if they purchase trip insurance.  However, in that rare case of "no-insurance-but-needs-to-cancel," they will allow guest to use that payment toward a future, off-season, open date. Yes, their incentive is a little different that ours as the property owner, but it still may be an alternative for a more palatable solution.

We get net payment from the PM.  I think it's pretty standard.  Also, there are other things that our PMs pay for that get netted out as well such as pest control, smaller repairs, etc.

Not an attorney, but my experience (including both a sale and purchase in the past couple of months) is:

- NC is an attorney close state

- Buyer chooses closing attorney.  Who chose the attorney for you closing?  Were you using an agent?  In almost all my purchases, my agent has asked me if I already had a closing attorney or if I wanted a recommendation.  On my purchase last month, however, I unexpectedly received an engagement letter from a closing attorney.  Turns out my buyers agent had just assumed I would use the one that most of their clients do, so he never asked me who I wanted to use.

- Seller usually uses same closing attorney but can use different attorney (for seller-side  doc prep).  Settlement statement separates out legal costs for each side, so you simply pay actual for whichever side of the deal you're sitting on.  I did this on a sale back in Sept because I didn't want to travel one or two county over to sign docs.  In my case, the two attorneys were charging similar amounts for the seller docs, but I ended up saving a few dollars because the closing attorney wanted to charge an extra fee for me to sign docs before closing!

- Technically, any NC-licensed attorney could probably close, but for practical purposes, it probably only makes sense to use one in the same or a nearby county.  I think some of the less populated counties may not have electronic submission, so only the nearby attorneys will close there.  Even for counties with electronic submission, attorneys who aren't closing there regularly likely aren't willing to close one-offs there.  Even if you're buying in a small town, there's probably a larger city in the same county that has attorneys you could definitely use.  If there's not a big city in the same county, there's almost certainly one in an adjacent county, and they probably do closing in the smaller county.

- As for wiring instruction, yes it's scary that they expected another party to forward instructions to you...that's asking for fraud. However, I've definitely received wiring instructions in PDF via unsecured email.  I always confirm phone number separately (i.e., definitely not via the same email) and then call to confirm the wiring instructions.

You tagged Western NC.  Northwest or southwest?  If you need someone in northwest (e.g., Watauga County, Avery County), I can connect you with the one I used.  I ended up not having any issues with them.

Look at the local properties on VRBO and Airbnb to find who's managing multiple properties.  Use the Enemy Method to see which properties have good occupancy AND good (high) prices and use that to see who the good managers are, and reach out to them.

Coming from QBD/QBE as well, I totally agree with your thoughts on QBO...it ain't the same thing!  However, you may consider it for a couple of reasons.  First, any direct integrations are likely going to come to QBO first (and may never come to QBD).  Also, if you scale and want to outsource your bookkeeping, a cloud-based solution will work a lot better than a local, on-prem solution.  Of course, you can use QBD now and migrate your data over to QBO later when the time comes.  Configuration is basically the same, and usually everything will migrate seamlessly. However, be aware that you'll need the QBO Plus plan to get Classes...yes...I know...that's CRAZY but true!!!  

As for your real question, we track gross rents via a gross-to-net invoice.  For example, we create an invoice (or sales receipt) that contains two lines.  The first line is an item for gross rent that, of course, maps to a rental income account in the GL.  The second line, is a property management (or commission) item that maps to an expense account and the amount is entered as a negative on the invoice.  Therefore, the invoice is for the correct net rent amount while the correct gross rent and and expenses are also recorded.  The accounting packages are smart enough to bring the negative amount on the invoice over as a positive expense in the GL...all that debits and credits stuff from accounting class :)

I like doing it this way for a couple reasons.  First, it makes it easy to report *accurate* income and expenses on forms like 8825 and Schedule E.  Second, it gives me the ability to easily see true income versus expenses in order to make informed management decisions.

For our STRs, we used property management companies that collect and remit sales/occupancy taxes, so we don't enter any of that info into our accounting package.  We also don't track rental source (Airbnb vs VRBO vs PM's direct site) because we're not making management decisions based on that (our management decisions would be at the property manager level).  For our needs, we create a single monthly invoice for each property management company that contains all their bookings for that month, and that invoice has a revenue line and a property management fee line for each of the bookings.

If we were self-managed, I'd want to be able to make management decisions based on performance at the booking platform level.  For example, is Airbnb's yearly fee worth it for property #1?  To get this level of information, I would likely do individual gross-to-net invoices for each booking using the booking platform (Airbnb, VRBO, Direct #1, Direct #2), as the "customer."  I could then pull platform-level data by running customer-based reports.  If that didn't work for some reason (like, if I wanted to use customer for something else), I would use items that mirror the booking platforms (e.g., ABB rent vs VRBO rent), so I could pull platform-level data via item-based reports.

Regarding sales/occupancy taxes, if the booking platform collects and remits them, I personally wouldn't enter any of that info because 1) it's a pass-through that doesn't affect my books, 2) it doesn't actually touch my accounts, and 3) it creates extra work that is unnecessary but creates a source of errors and discrepancies within my accounting package.  

For platforms that require me to remit these taxes, I'm not 100% sure which route I would take.  My first thought would be to set QB up to correctly calculate these taxes.  This would give you the ability to double-check the platform's calculations plus, you'd have the QB sales tax functionality to help manage and reconcile the remittance payments. Ultimately, you and not the platform, are responsible for accurate collection and remittance, so using QB's functionality to help would probably be my preferred way of handling.  

However, if the platform calculates it and collects it, an alternate way would be to record the collected amount on the gross-to-net invoice using an item that maps to a liability account to hold those amounts until you pay them.  You would then pull a report from the booking platform with the tax liability and use those number to pay the amount(s) to the municipalities each reporting period.

HTH