Q&A: Outsource Property Management of Rentals You Own

Q: How do I track in QuickBooks properties that I own, but have hired a management company to deal with everything?

Thanks for emailing me. You have a few choices, depending on how much information you want to track, and how much you trust your property management company. I’ll lay out a few of the options, ultimately I encourage you to try a few different ways, and decide what is best for you. Also, consulting with your accountant will be essential to make sure you record things properly for taxes.

Option 1: Record Everything As If You Managed Them Yourself

One way you can handle things is to enter most of the same information you would if you managed the properties yourself. For instance, you might want to know the names of each tenant and his/her current status in payments. Who is behind, what are the late fees, etc. Probably though, you don’t want to do this, because you’ve hired a mgmt company.

Option 2: Record Per Property From Their Statements

Another way is to record high level income and expense per property. On a monthly basis, what did each property earn, and what were the expenses and capital outlays. This should  be reported to you monthly in your statements from the management company. You can track income/expense with classes. Capital investments would be tracked directly in the asset accounts. (Since your business owns the properties, you’ll want to have asset accounts for each. This can be as the book illustrates).

To make the net deposits correct (after reflecting gross rent minus fees, etc) you can use journal entries, or negative adjusting amounts in the make deposit screen. See Section 4.14 for an example (p 132 in 2nd edition) of using negative amounts in a deposit for adjusting.

Option 3: Rely On the Management Company to Also Do Your Bookkeeping

Lastly, if you have great trust in the property management company, and effectively are outsourcing some bookeeping and accounting to them, you might be able to just record individually some high level numbers and rely on their books of your properties. And trust their statements and/or online access and/or their own set of books for your company. Many are reluctant from this approach, as it removes the owner too much from the assets they own, and seems to make you more vulnerable to not knowing what is going on, or making mistakes come tax time. At minimum if you want this level of outsourcing, it would be better to have another bookkeeping company track Option 2, and they work with the management company.

So, you’ll want to run it by your accountant after you get a system you think you like. I encourage you to have individual asset accounts, one income/expense account (possibly with subaccounts for more detailed tracking). But then different classes for each property. And record monthly (or quarterly if that’s ok with your accountant) the income, expense and investments in each property. Also, take note of the gross income and subtract the management fee expenses, rather than just recording the net income.

I hope this helps. Order our full training on managing properties in QuickBooks today. It comes with a money back guarantee. And thousands of customers love it (read testimonials ♥).

See pricing information for QuickBooks training for Real Estate

Q&A: How do I add late fees for rental properties that are different amounts?

This question came up on the official QuickBooks forums (see also our forums). It’s a common scenario landlords with several properties face. We explain it in depth is sections 5.04 Manually Charge Late Fees and 5.05 Automatically Charge Late Fees in the kit.

How do I add late fees for rental properties that are different amounts?
We have several rental home with all different rent amounts, I have set up and memorized the monthly rent, but how can I add late fees without having to enter and calculate each one each time?

You are probably invoicing for rent already (that’s how we teach it, and do it ourselves), and then those invoices are memorized. Great.

Late fees are simple, although you’ll need to decide if it is a fixed fee or a percentage of rent. Set this up in your preferences. (Edit > Preferences…, or similar for mac / online users)

How do you do this? Use the Assess Finance Charges feature. Set a grace period, and then “Assess Finance Charges.” Each property’s invoice is different, so based on your preferences, each property’s finance charges will be calculated uniquely.

Note: some landlords choose to manually enter late fees, so that they get to review each tenant before charging them, in case special arrangements were made.

Order our full training on managing properties in QuickBooks today. It comes with a money back guarantee. And thousands of customers love it (read testimonials ♥).

See pricing information for QuickBooks training for Real Estate

 

 

Become a General Contractor

Many landlords encounter challenges with city inspections and permits when they try to do work themselves. You can subcontract out everything, or sometimes it makes sense to take the general contractor’s license exam and become one yourself.

Advantages:
  • If you are a general contractor, you can keep employees busy during slow times with work on own rentals.
  • If you are a rental owner, you are able to get permits and do work without subcontracting as much since remodling requires permits and licensing to do work on rental properties.
However, always subcontract HVAC, electrical, and plumbing work to licensed contractor. Some states only allow liens on property for nonpayment if the work is performed by a licensed contractor. This would apply, and be beneficial, if you were doing work for others.
Disadvantages:
  • Time to study and cost to take test. Depending on your level of experience expect to invest several months getting familiar with the building code books and practice tests.
  • Cost to renew license yearly.
  • Cost of bonded and insured employees.
Also consider: some municipalities or counties may have a remodelers license which may be less expensive to maintain.
For many hands-on landlords it is the next step to take to enable them to have higher margins and expand their professional offerings. For others, the time and cost is not worth the investment. Leave a comment if you want to share what your experience is.

Order our full training on managing properties in QuickBooks today. It comes with a money back guarantee. And thousands of customers love it (read testimonials ♥).

See pricing information for QuickBooks training for Real Estate

Q&A: Rent to Own in QuickBooks

If you’ve signed up a tenant with a rent to own structure, there are unique requirements for recording the transactions. Here’s a recent question from Gloria.

How do i book rental income that is no longer rent but going to be payments for a purchase of property for 250,000 tenant pays 3500.00 a month towards payment?

Create a receivable? Chart of accounts “options to purchase” Asset? Help …

Great question. This can be complicated, and we recommend you work with an advisor.

Rent to own, or an Option to Purchase, is a contractual agreement between buyer (lessee) and seller (landlord). The buyer purchases an option to buy the property later. In your books, that will be recorded in a liability account (just like security deposits). Buyer and seller likely decide on a purchase price then, or let it fluctuate with the market. Traditionally, a price is agreed upon in the option. Both parties negotiate the terms, and the buyer (lessee) has exclusive rights to purchase the property during that time period. If the buyer eventually buys it or not, the option to purchase is non-refundable. Then, each month as the lessee pays rent, a portion of that goes into the purchase price. Over time, they “prepay” for the purchase, in addition to pay rent.

The initial option payment is not income until the renter exercises the option, or forfeits the option and leaves. So the initial deposit of the option payment posts to a liability account “Option – 123 Main St.”

Then, monthly payments often are counted towards a future purchase of the property. For a $1200 rent check, it could post like the following journal entry:

Cash Dr $1200
Option – 123 Main St  Cr. $100
Rental Income  Cr. $1100

Sometimes in option agreements renters also need to pay property tax and insurance. It is the same as if you were paying to an escrow / impound account when you get financing from a bank. In the above option, it would decrease the rental income, and credit another liability account for Impound.

This is just a start, there are other things you still need to consider such as if the tenant surrenders the option, or exercises it.

Great question – you were on the right track asking this question. We look forward to a followup in the comments below.

Order our full training on managing properties in QuickBooks today. It comes with a money back guarantee. And thousands of customers love it (read testimonials ♥).

See pricing information for QuickBooks training for Real Estate

Rental Management in QuickBooks?

What do new landlords need to know about Rental Management in QuickBooks?

First, you need to decide if you use the online, mac, or windows version of QuickBooks. We use a mac laptop, but opt for VMWare and the windows QuickBooks Pro (discount purchase link). Why? It gives us all of the advanced features that are not yet present on the mac version. However, for 90% of landlords any version is equally capable.

Second, remember these crucial rules when setting up your company file:

  • Rentals you own are fixed assets
  • Rentals are also classes
  • Rentals are also customers

This will help you manage your investments more effectively. You can create reports like the following.

sample balance sheet - landlord accounting quickbooks

 

Order our full training on managing properties in QuickBooks today. It comes with a money back guarantee. And thousands of customers love it (read testimonials ♥).

See pricing information for QuickBooks training for Real Estate

Rental Properties Legal Entity Choices – Sole Proprietorship, LLC, or Multiple Entities?

As an investor in rental property, you have several important priorities.

  1. Delight your tenants so they stay, refer friends, and pay on time.
  2. Protect your personal and business assets.
  3. Grow according to your goals.
Creating a formal entity is very important to shield you from personal liability for actions taken by the business.

Sole Proprietorship

Operating any business as a sole proprietorship is generally not advised by attorneys as you are exposing yourself to personal liability if something happens in the business. This is not an actual entity, but rather the “default” that happens when you just start doing business. Some people start this way, but then have to transfer that property into a different entity. (See section 4.08, Transfer a Property you own into your Company in the full guide ($)).

Limited Liability Company, or LLC

This is very common among real estate investors and management companies. This is the structure assumed in the sample company files in our guide. Laws differ from state to state, and LandlordAccounting.com does not provide legal advice. Consult your attorney. Nolo is also a great place to start reading legal books about setting up your entity.

S-Corp / C-Corp

S-Corps are still a popular option, although in recent years LLC’s have become much more popular. C-Corps are rarely advisable due to their inefficient tax characteristics compared to other entities.

Multiple Entity Structure

You may consult with your attorney and resolve to create several entities. Some may hold assets but not be exposed to liability, and others do the management (liability activities), but do not own the assets. This is sometimes referred to as the “Hot entity / Cold entity split.” The hot one has all the risk, but no substantial assets.

One QuickBooks company file is designed to handle bookkeeping for one company. If you are using a multiple entity structure, you have a choice: one file, or several files. If one file, you could use classes for each entity and sub-classes for each property or owner. Some companies chose to create an account for each entity, and duplicate sub- accounts (like Rent Income and Maintenance Expense) under every entity’s account. Different files could also be used for each entity.

Intuit would want you to create separate files for each entity, because their tax line mappings are designed for one file to map to one company. And, when creating Balance Sheet or P&L reports they default to include all accounts. If you go this route, it will take some effort to and open and close and enter transactions in each company file. But, reporting will be straightforward. (And, recent year’s QuickBooks support opening several company files at once).

See also other posts and discussions on multiple entities.

Order our full training on managing properties in QuickBooks today. It comes with a money back guarantee. And thousands of customers love it (read testimonials ♥).

See pricing information for QuickBooks training for Real Estate

Q&A: How to deduct a tenant’s rent who also does work for you?

Today’s question comes from a creative landlord who wants to credit a tenant for work performed. (If you like this, consider buying our full training).

I’m a landlord, and sometimes I make an arrangement with a tenant to get a rent deduction in exchange for work done. How do I record this in QuickBooks?
- Judi

Great question.

Example: John Smith, a tenant of yours, also shovels snow for your apartment building. For this, he gets a $100 deduction on his rent during the winter months.

You want to indicate that you paid him $100 and decrease his outstanding rent due balance. Here’s how:

  1. From the Banking menu, select Write Checks.
  2. Select the Vendor from the Pay to the Order of drop-down.
  3. Enter the expenses and/or items for which you are writing the check.
  4. Select the Expenses tab.
  5. On the next blank line, select the Accounts Receivable (A/R) account from the Account drop-down menu.
  6. Enter a negative (-) amount equal to what you wish to deduct for the outstanding accounts receivable balance. Here, $-100.00.
  7. On the same line, select the customer:job “Smith, John” from the Customer:Job drop-down menu.
  8. Enter a memo into the Memo field on this line. This memo is an optional explanation of why money is being deducted from the check.
  9. Once all of the information has been added to the check, click the Recalculate button. This is located in the bottom-left corner of the Write Checks window.
  10. Now, click Save & Close.

pay a tenant with work due credit

Save the check and a credit will be added to the customer’s A/R account. Then apply this credit to the outstanding customer balance.
If you print the check, the deduction will now reflect on the check stub; along with the memo explaining the deduction.

Order our full training today. It comes with a money back guarantee. And thousands of customers love it (read testimonials ♥).

See pricing information for QuickBooks training for Real Estate

eBook Excerpts from Chapter 2: Accounting Fundamentals

A free sample from chapter 2 Accounting Fundamentals of our Landlord / Property Management in QuickBooks guide.

We just finished posting our sample excerpts from all of chapter 2. Please take a look at them to get an idea about what content you can find in the full guide.

We hope to see you as a customer soon, where you can instantly download everything, including sample company files.

Chapter 2.    Accounting Fundamentals

2.01    Why Does a Landlord or Investor Need Accounting?
2.02    The Basic Accounting Equation
2.03    What is an Account?
2.04    What is The Chart of Accounts?
2.05    Debits and Credits
2.06    Introducing the Balance Sheet
2.07    Introducing the Income (P & L) Statement
2.08    The Sum of all Debits = the Sum of all Credits
2.09    What is Double-Entry Accounting?
2.10    Cost Basis and Adjusted Basis of Property
2.11    What is Depreciation?
2.12    What are Capital Improvements versus Repairs?
2.13    Cash Accounting, not Accrual

Order our full training today. It comes with a money back guarantee. And thousands of customers love it (read testimonials ♥).

See pricing information for QuickBooks training for Real Estate

eBook Excerpt: Chapter 1. Introduction

Below is an unedited excerpt of Chapter 1 of our training guide for landlords to use QuickBooks. If you like what you see, you can order risk free and download everything immediately. Want a hassle free refund? Ask us for your money back within 30 days.

Chapter 1. Introduction

1.01  Who Should Read This Book
1.02  What this Book Is
1.03  What this Book Is Not
1.04  When is a Good Time to Read and Implement this?
1.05  How this Manual is Designed
1.06  QuickBooks is not Quicken
1.07  QuickBooks is not Quicken Rental Property Manager
1.08  Benefits of QuickBooks
1.09  My Personal Goal

The actual book is in PDF format and comes along with a sample company file and a template data file. You can print the eBook, no restrictions.

1.01 Who Should Read This Book

This book is designed for people involved in the purchase, management, and tracking of rental homes or apartments. It is my hope that this book will aid you in your understanding and application of QuickBooks for a real estate investment company. Other individuals such as property managers, commercial landlords, or developers have found this book helpful too. I appreciate your feedback and success stories as your read this over. Share successes at LandlordAccounting.com/your-story.

You will understand how a real estate rental business works and the associated terminology. Ideally you already either have your own corporate entity, or are in the process of forming one. It is essential for you to have a strong understanding of the financials of your company, even if you hire a bookkeeper. We’ll help you learn those. Use QuickBooks to enter data properly, and you will be able to analyze your business, make decisions using accurate financials, and save an enormous amount of time.

I recommend starting at the beginning to understand the underlying accounting principles. This applies if you plan to enter the bookkeeping data yourself, hire a third party, or train an employee to do it. You will learn common bookkeeping activities a landlord will encounter while dealing with properties, tenants, and sorting out financing.

1.02 What this Book Is

This manual is an education tool to bring anyone involved in the residential real estate rental market up to speed to manage the bookkeeping and property management using QuickBooks. The basic concepts and terminology will still apply to older or newer versions.

Throughout this book I will use a sample data file of an LLC. Your entity, state laws and individual needs may differ. Get a competent accountant and attorney and go over what you do in QuickBooks.

Large public corporations keep two sets of accounting books: one for tax purposes, and the other for management decision making and analysis purposes. This manual assumes you keep one set of books and use one QuickBooks file.

1.03 What this Book Is Not

This manual is not a replacement for your accountant. There are nearly 10,000 pages of tax law which change yearly. Please interview many accountants and choose a competent one with extensive experience with QuickBooks and real estate business owners like yourself. When you’re ready to implement QuickBooks for your property management, make sure your accountant supports you and is familiar with the program. Most who deal with small businesses are, and may even offer you a discount for using QuickBooks.

This manual is not a replacement for your attorney. Consult your attorney. Do not consider anything in here legal advice.
ch1.03 caution quickboks landlords

1.04 When is a Good Time to Read and Implement this?

Read now! Implement slowly. Commit to reading this every day and playing with QuickBooks until you master it and are ready to try it on your own company. I invite you to visit the free forums at www.LandlordAccounting.com/forum on a regular basis to ask questions and strengthen your knowledge by helping answer other people’s questions.

It is suggested to not try this on your own “real” books at first. Instead enter transactions that are similar to what you would incur in your company. Then try generating the reports you need and have your accountant look it over. Start using QuickBooks exclusively when he or she approves your setup.

Like what you’re reading? Order our full training today for the 200+ page ebook and QuickBooks data files.

See pricing information for QuickBooks training for Real Estate

1.05 How this Manual is Designed

I have been an investor, landlord, consultant, and business owner. I firmly believe in the importance of understanding the financial health of one’s companies. Some investors just want to make the next investment, and they insufficiently manage, optimize and track what they already have. Through this book and the accompanying company files, you will enter property, tenant and management company transactions, automatically track tenants’ late fees, understand your business’ financial health, and save time.

Information that you type appears in this special typeface. If you need to press a special key sequence, such as the “Control” key and the “A” key, I will write it like: Ctrl+A. I put QuickBooks specific terms in “quotations.”

When you need to click a link or a menu item on the screen those will be bold. For example, to open a company file in QuickBooks, click File > Open Company….

If a new term is introduced, I use a definition box like the following:

ch1.05 definition quickbooks landlords

As you read you will have questions, I try to answer them all here in FAQ’s. If I don’t answer your question, don’t hesitate to search the forum at www.LandlordAccounting.com – someone else probably had the same question and it was answered.

ch1.05 faq quickbooks landlords

Sometimes something tricky comes up; if that’s the case, take careful note of our Quick Tips:

ch1.05 quick tip quickbooks landlords

There will be times that you need to use extra care, we will highlight these moments with a caution.

ch1.05 caution quickbooks landlords

When a related topic is relevant to current discussions, the See Also box will refer you to these other topics.

ch1.05 see also quickbooks landlords

From time to time there will be additional information that does not merit inclusion in the main text area, but some people will enjoy reading it. A sidebar will pop up on the side and delve into more details.

ch1.05 sidebar quickbooks landlords

1.06 QuickBooks is not Quicken

Quicken is a personal finance product for individuals. It uses single entry accounting. Amounts are usually recorded in column form, like a checkbook register. Entries include the transaction’s date, a memo, and the amount of money involved.

QuickBooks is an accounting solution for small businesses. It uses double entry accounting. Each entry has two accounts (sometimes more with “splits”) associated with it. In the simplest case this means one account is where the money came from, and the other explains how it was spent. For instance, you use cash to buy a new property. The two accounts involved are cash and a fixed asset account for the property. Money came from the cash account and it went to the new asset. Details on double entry accounting appear next chapter. QuickBooks makes it easy and once you understand it, you will be grateful of double entry’s power.

Businesses need more detailed financial reporting than individuals. QuickBooks transactions are recorded on a dual impact on the financial position (change to balance sheet) or operating results (change to income statement) or both. You cannot deposit money from a security deposit into a checking account (increasing an asset on the balance sheet) and stop there. You also need to recognize that you owe this back to the renter (and add a liability on the balance sheet).

QuickBooks has fields to collect information about your tenants, services, vendors, inventory, late fees, etc. You can invoice your tenants, track accounts payable and rent receivable, make journal entries, create advanced reports and more in QuickBooks. Many of these functions are not available in Quicken.

When you start to use QuickBooks for your business, it should have no relationship to your personal finances. If you commingle the two, you may have serious consequences with the law or tax authorities. It is essential to keep separate personal and corporate finances. If you are migrating records from Quicken to QuickBooks, refer to the integrated help on this topic in both programs.

See pricing information for QuickBooks training for Real Estate

1.07 QuickBooks is not Quicken Rental Property Manager

Many of my customers have first tried to use Quicken Rental Property Manager; however it did not work out well for them. Because it is designed to be so “simple” many real business scenarios just aren’t supported. QuickBooks’s is still our best bet. Here is what some of my customers had to say.

Note: I recommend you use QuickBooks, not Quicken Rental Property Manager. Below are complaints of people who tried to use Rental Property Manager. (Later they were delighted once hey started using our training – testimonials ♥).

“I tried the Quicken PM [Rental Property Manager] – very busy and very non- intuitive.” – C.B.

“We are presently using Quicken Rental Property Manager 2.0. It is an entry level program, but quite an improvement from our previous excel spreadsheet system. Quicken RPM 2.0 does not provide the ability to compare expenses, profits, between individual units/tenants on our property’s.” – D.W.

“Checked with my accountant on this one and turns out this is actually a QUICKEN product so it doesn’t have the double entry system and some other necessary business features.” – C.K.

“The new software [Rental Property Manager] did not produce any late notices and is not able to be interfaced with Quickbooks.” – E.E.

I hope you too will turn to QuickBooks since it is a real business accounting software package. With this guide and our data files, it is not hard to set up, and you’ll quickly be moving in the right direction.

1.08 Benefits of QuickBooks

QuickBooks is the number one bestselling small business accounting software in the world. It is extremely easy to use, very powerful, adaptable, loved by accountants, and it creates a multitude of detailed reports. It saves you time, money and headaches.

You will be able to get the information you need out of the program through customizable reports, and efficiently enter the data through its well-designed user interface.

1.09 My Personal Goal

I first wrote this book after our company struggled with implementing QuickBooks for residential rental properties. It is my goal that:

  • You will successfully implement QuickBooks as your business accounting solution.
  • You will be completely satisfied with my book and website.
  • You will build a competent team of professionals.
  • You will tell your partners and associates about my product if you find it useful.

ch1.09 100% guaranteed quickbooks landlordsIf you are not satisfied with this book, let me know within 30 days of purchase and receive a complete refund. Your satisfaction is important to me.

 

That concludes the excerpt from the book, Chapter 1. Please read more on our blog, or more efficiently, purchase our training today to get expert assistance in managing properties in QuickBooks.

See pricing information for QuickBooks training for Real Estate

Video of Landlord Accounting Training (long form)

Read happy customers’ testimonials ♥, skim through the training information, or watch the short video below. You’ll learn how QuickBooks can be easily, and correctly, set up for Landlords.

Share a comment below, or read more on the blog.



Ready to invest in your training? Order today risk free and download everything in seconds. Get your money back if not fully satisfied. Hassle free, no questions asked.

See pricing information for QuickBooks training for Real Estate

Questions? Leave a comment below, or contact us at Landlord Accounting.