All Forum Posts by: Max Emory

 Just sent you a DM, Nicole!

Bookkeeping for REI companies (especially rental property companies) is super nuanced. For example, for rental properties, lots of the categorization depends on the REI's specific tax strategy regarding what we're capitalizing versus what we're immediately deducting. It's heavily dependent on what the tax code allows and who is interpreting the tax code. There's room for flexibility depending on the desired tax strategy.

Once you have more than a few properties, you'll want to consider software. But, excel is totally fine in the beginning (in addition to your PM software to capture transactions outside of the properties).

We use QuickBooks Online exclusively for all of our REI Clients. I use it for my personal portfolio as well. We've found it has superior reporting features, integration features, and is overall more efficient to work within than other REI-specific software.

The downside is QBO is not set up for REI so you'll need to do that or work with an expert to ensure it is set up for your business appropriately. That's the key component that is usually missing when I hear other entrepreneurs/investors say they don't like QBO.

Something else to keep in mind is your entity structure and how your entities file tax returns. As a general rule, each entity that files a separate tax return (partnership, s-corp, c-corp, etc) will need its own QBO subscription. If entities are disregarded, you can keep up with more than 1 in a single QBO account using the location/business feature to keep track of them separately. This will save you on subscription costs.

If you want to discuss any of this further, I'm happy to answer questions and help walk you through it.

Best of luck!

@Sam Shikiar, we have several bookkeeping clients who have partnered with a local GC where the GC works "at cost" and they split the profit 50/50, 60/40, etc. Our clients fund the deals themselves through hard money.

We have other house-flipping clients who JV with capital partners for a 50/50 split. Our clients manage the projects, and the capital partner brings 100% of what's needed to fund the project.

I'd recommend just taking on private lenders if you can at a reasonable interest rate. Those deals seem to work out better for our clients than the equity splits. The equity split protects your downside, but if you hit a home run, it's not as beneficial to you.

I'm a BRRRR guy myself so I'm just speaking from what I've seen our bookkeeping clients do since we serve a ton of house flippers and all of them raise money in some fashion.

 Agree with @Michael Plaks, @Doug Lovett. This feels like rent to me, based on the scenario you described, unless they agreed from the get-go that it was a concession toward closing costs or the purchase price of the property. But, it doesn't seem like that's likely since this was contingent on the seller meeting certain criteria.

Congrats, @Lindsey Konchar! Great job taking action!

I'll DM you the list of REI-savvy CPAs I recommend.

Once you guys scale and the cash flow is there, you can weigh getting your bookkeeping workload off your plate. It's worth it for some but not for others so it will come down to your specific situation and goals.

Hey @Dayana García, congrats on your first deal and it actually cash flows! That's amazing.

If you sell, how will you deploy the funds to attract a higher return? Do you guys already have more properties identified with larger margins? Or, maybe a different vehicle than rental real estate?

Also, what are your goals? Are you purely after cash flow or are you concerned with appreciation at all? Rental properties make money a few different ways so the other money makers are worth factoring into your decision unless you're purely after cash flow above anything else.

Hey @Ron Amshalom, it's a single-entry accounting platform. So, as long as everything flows to your personal tax return and you don't have any "filing" entities, Stessa is fine for you.

@Bobby Andrews, you've received some excellent answers from heavy-hitting CPAs who specialize in serving REIs. I won't repeat what they've said, and I'm not a CPA. I'll just speak to the bookkeeping side of this.

Double-entry accounting ensures your numbers (financial reports) are accurate in addition to being required for "filing" entities. Double-entry requires reconciliations between your deposits/withdrawals and the balance of each of your financial accounts (bank accounts, credit cards, LOCs, mortgages, etc).

Single-entry accounting is much more susceptible to errors, which can not only cause false reports being filed at tax time but can cause major issues for you when looking at false financials and making decisions for your business based on false data.

Hopefully, that makes sense.

We use QuickBooks Online exclusively for our clients and 100% of our clients are REIs. But, we have a custom way of doing this since QBO isn't an REI-specific software.

Moral of the story, it may be time to professionalize your bookkeeping if you have enough volume and cash flow to support it (if you don't have an accounting background and are short on time). 

You'll save at time time this way due to your tax pro not having to spend extra hours figuring your books out, and you'll have accurate books to take to your tax advisor throughout the year for tax strategy.

Just something to think about.

Best of luck!

Hey @Tim Hart, we use QuickBooks Online for all of our Clients and I use it for myself as well (including my REI activities). Some people like Xero because it's cheaper than QBO but it's just a general accounting software like QBO (not REI-specific).

So, for QBO and Xero, you really need a professional to set it up correctly for you and teach you how to run it or a course that teaches you (we actually have one).

Alternatives that are REI-specific -> Buildium, Appfolio (over 50 units), REI Hub, Stessa

There are plenty of others but I'd say these are worth checking out.

Hey @Blake McWilliams, I'm not super techy so this isn't cutting edge but QuickBooks Online, Zapier, MailChimp, and Fathom/Fireflies are a few that come to mind that make my life easier.