All Forum Posts by: Dan V.

@Beth Cannon  For tracking purposes, I will not delete the invoice. Rather I will write it off following these steps:

1. Create an account called Bad Debt Expense.

2. Create an item and call it Write off (or something similar), then map the item to Bad Debt Expense Account.

3. Create a credit memo using the item Write off.

4. Process receive payment for $0 amount then apply the credit memo to the open invoice account. 

The suggestion of Nancy will work too, but I prefer using a credit memo rather than discount. 

@Tim Schroeder Talk to your accountant and go over the list of what you purchased in preparation for the rental properties. There are rules on what can be capitalized (ie. major repairs, appliances & furnitures) and expensed (supplies, minor repairs, decors etc.) depending on the nature and timing of the transactions. However you determined whether you capitalize it or expense it, it should be treated as such in both accounting and tax purposes. One possible difference will be the recognition of non-cash expenses such as depreciation since some items are entitled to bonus depreciation for tax purposes, while you can use a simple straight line depreciation for accounting purposes.

I don't see any reason why you should not use it for the whole thing since Quickbooks is capable of tracking the things you mentioned.  Having everything together in one place will help you see the overall health of your business plus these are related to each other, for example, your mortgage payment consists of interest (P&L item) and principal (liability) so you don't want to track the interest only on one software and the principal on another. Depreciation also affects the book value of your asset and your equity as well.

Also, your accountant will be delighted to see everything in one place comes tax season. 

Welcome to BP @Adam Dobbins!

I would recommend setting up a separate bank account for the rental property (even under your name) and use that exclusively for business transactions. If you may need to take money out to pay for personal expenses, transfer the money from the business account to your personal account, then pay your personal expenses from your personal account. From that point on, should you need to track your business transactions thru an app/software, you will only need to refer to the business account since you already knew that you are separating them from the beginning. As Ed mentioned, you might also need a separate bank account for the security deposits (if any), it depends if your state law requires it, go check.

It depends on what type of entity setup you will have. If it's an LLC (pass thru structure), you can any time put in money as capital contribution and money out as capital distribution without affecting your taxes, you don't have to worry about salaries or interest to yourself. S-corp & c-corp have different tax treatment when it comes to money distributed to yourself which is more complicated. Talk to your tax accountant or tax strategist to determine what entity type best fits you, and discuss the pros & cons as well. But in my opinion, if you are just starting out, LLC should be fine, for simplicity.

Balance sheet and income statement should be good. You may have something written in the loan documents about the minimum ratio (ie. debt service coverage ratio, times interest earned, etc) that you need to meet in order to comply with their terms, so make sure you have the line items in your financial reports needed to calculate them. Also, before you submit, you might want to review them to make sure you are in compliance. If you have some requirements to meet, it's a good practice to review your financials at least in the last month of every quarter when reports are due, to make sure the numbers are good.

@Andrew Klein Bookkeeping class will teach you the basics and terminologies like debits, credits, assets, liabilities, capital, income, expense, balance sheet, income statement, etc. Specializing in a specific industry like RE, can be learned thru hands-on experience and/or further education (class or online). If you are interested in RE industry, you need to familiarize yourself of specific terminologies like buy & hold, flipping, RE professional, wholesaling and lender, of which each has different accounting treatment. You will also need to learn how to read HUD statement and loan documents. And lastly, familiarize yourself with some common accounting software used by the industry like Quickbooks, Xero, Wave etc.

Try reaching out to local bookkeeping/accounting firm in your area who handles RE clients or maybe to local RE investor to find out if they're willing to teach you in exchange of your service. Good luck!

@Julie Tucher I recommend setting up the property as Class and breaking down of costs should be done in the chart of accounts (setup as inventory and cost of goods sold). Setting up costs as COGS will give you a better P&L picture (Sales - COGS = Gross Profit) rather than having it set up as Class. You can even run a report showing each line as percentage of income (see below as example using QBO). For flip, I don't usually run reports by customer, so I don't track transactions using that field. 

Quickbooks Pro has enough features for real estate business, including flipping. 

Just to give you a general idea on the setup. All expenses prior to selling the property should be classified as inventory, at least, create a category for acquisition, rehab, & carrying cost (you may break them down further into sub-categories if you'd like). Once the property is sold, move the costs from inventory to cost of goods sold (create the same categories/sub-categories as you have in the inventory). You can also set up categories to track for selling costs like closing costs, commission, professional fees, etc. Setup each property as Class then make sure you assign a class to each transaction. Create a separate class for admin expenses or any expenses not directly related to a property like office supplies, bank fees, office expenses, etc. 

For tracking the money in/out by the partners, create equity account for each partner, money in as capital contribution, money out as capital draw.

By the way, Quickbooks online can be customized like dekstop version. However, most people stay away from it mainly due to its cost while others prefer it for convenience and mobility. Good luck!