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 ♥).

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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.

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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.

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Q&A: Tracking Properties in QuickBooks (Class and Customer:Job?)

New landlords setting up with QuickBooks often ask the following question:

Do I need to set up both a Class for each property and a Customer?

Good question. Yes. We set up a Class to be able to slice and dice the P&L statement. We set up a Customer to track the current tenant in a property. Actually, we teach to have a customer for the property and a job for the tenant living there.

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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.

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Q&A: Why are debit cards called debit cards?

After reading about Debits and Credits, T-Accounts, and more from our free eBook excerpts, you may be asking:

Why are debit cards called debit cards? When I use it my bank account decreases, and an asset account decreases with a credit.

True, your checking account decreases (credits) when you use a debit card. But that’s only half of the story. For the answer, you need to look at the bank’s perspective. A customer’s checking account is a liability (when you want the money, the bank better give it back.) When you withdraw money that decreases the bank’s liability. You can think of them paying you back some of the money they owe you. Liability accounts decrease with debits. The withdrawal of cash from a banking account is reflected on the bank’s balance sheet as a debit. And that is why a debit card is a debit card.

Read more in our blog, or order our landlording QuickBooks training today. It comes with a money back guarantee. And thousands of customers love it (read testimonials ♥).

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Q&A: one or two QuickBooks companies for US and Canadian businesses?

Chris, a training customer of ours writes in:

I am going through your course now. It’s very helpful (♥) and am looking forward to mastering it.

I had a question about using QuickBooks for two different real estate companies. We have one based in Canada, and one in the US registered as separate entities. Would you recommend keeping both companies in the same Quickbooks document, or having two separate docs to work off of?

I am wondering if it makes more sense to amalgamate all our activities, or to keep them compartmentalized?

Thanks, Chris

Chris, thanks for writing in. Two company files is almost always the better approach.

Generally it is easier inside QuickBooks to have one company per company file. You can combine them into one (with separate balance sheet accounts for each) but it is more work. Now all recent versions of QuickBooks for Windows support opening multiple company files at the same time. (Note, I use a mac but more frequently use QuickBooks in VMWare with Windows since that version from Intuit is the most mature product). Note, if you are using the online edition, you will need to have multiple subscriptions to have more than one ‘company file.’

If you want to take advantage of the Canadian Specific version of QuickBooks, then you’ll certainly want two company files. One for Canada, in the Canadian version, the other in the US version. You can probably get away with just using one (Canada or US) version of QuickBooks too. Check that your accountants can open whichever country file you send them.

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Q&A: Partial Security Deposit Payments in QuickBooks

P.J. wrote in asking how to receive security deposit payments over time, such as in a payment plan.

How do I properly track partial security deposit payments (Some of our tenants cannot pay full deposit up front—but might take an additional month to pay in partial payments).

We need a easy way to know at any given time how much they owe. I read how to setup the security deposit in your book—but I am unclear on how to determine how much they owe vs. how much they paid.

I can look at Chart of Accounts and see how much they have paid in Security Deposit—Current Liability account—but I cannot determine how much is remaining—any help would greatly be appreciated.

Great question. Fortunately, after reading other parts of the book you practically know the solution already. You’ll want to create an invoice and invoice the tenant (job) for the security deposit. The key is you need to create an item, just like the Rent Item, but it is a new item to post to this tenant’s security deposit sub-account.

Create the new tenant’s security deposit account:

create security deposit account - partial deposits

security deposit accounts - partial deposits

Create the item to use on the invoice for the security deposit.

quickbooks item for security deposit of a tenant

partial security deposit item lists

Invoice the tenant for the item, as in the rest of the examples in the book. Then go through the book’s normal receiving of payments process as the tenant pays things back. Receive payments as many times as they pay. Choose if you want (and are allowed) to impose finance charges to a late payment.

How much does this tenant still owe in their security deposit?

Look at the Customer center and see the tenant (job’s) current outstanding balance. Or, click Reports > Customers & Receivables > Customer Balance Detail.

If all of this seems complicated, we have a simpler way that works in most cases. Usually security deposits are paid upfront, so we teach a quicker method in our training. Also, we show instructions for combining the first month’s rent with the security deposit. There are many more screenshots (with detailed arrows) in our book than in the abbreviated instructions above.

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Q&A: Escrow Account for Mortgages

I recently received a question from R.C.

After reading your book How to Use Quickbooks for Rental Properties, I have a question about escrow accounts.

I set up a mortgage payment of $5300 a month. $4400 is principal and interest and $900 goes to an escrow account to pay taxes at the end of the year. When I look at the escrow account the payments show as debits and the balance is a negative number. At the end of the year I do a transfer from the escrow account to the bank account and then pay the property taxes? The transfer from the escrow account shows up a credit. Can you help me understand why this is from an accounting point of view?

Great question. Why is the escrow account balance negative? I predict it is the wrong account type. Also, probably you are writing your mortgage checks something like this:

escrow check payment for bank loan

The key is what type of QuickBooks account is the Escrow Account? Is it a liability, an expense, or an asset? Because you are accruing money in there that you will later use to pay an expense, it is an asset you own. Thus, in QuickBooks create it as an Other Current Asset account type.

other current asset escrow quickbooks

When you do it this way, you will have the correct balance for your escrow. (If it were a liability account, it would show a negative balance).

transactions by account

At the end of the year, you can record a Journal Entry for your total taxes paid from the escrow account, making sure to also record classes in all the line items.

pay property taxes from escrow quickbooks

It is likely you would actually have several line items on this journal entry. One for each property. You have a choice to also create sub-accounts for each property under the escrow account. Generally that is not needed, but if you want it is an option for more reporting granularity.

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