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.

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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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

 

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Tenant Tracking

How do you track tenants? Landlords need to know current rent rates, late fees due, lease expirations, phone numbers, and more.

Do not buy custom software, instead use the trusted program your accountant already loves: QuickBooks.

In QuickBooks the secret to tenant tracking is in setting up your company file correctly. Save hours of time by allowing us to teach you the correct way, and give you a sample company file to download and play with.

The mini-mini version of our training:

Learn how to handle tenant tracking and billing. Move tenants in and out, set up and apply recurring charges, deposits, late fees, non sufficient funds, and more with QuickBooks for Property Management. Save time and reduce mistakes with automatic billing and late fee notices. Track lease expirations, unit anniversaries, occupancy rates, and tenant information.

 

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: 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.

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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Accounting for Mortgages with Principal and Interest

How do you make a mortgage payment in QuickBooks with Principal and Interest?

Track each mortgage payment by writing a check, and setting the breakdown inside it per principal, interest, and optionally private mortgage insurance or escrow.

Or, you can use the Loan Manager feature in QuickBooks.

The principal is going to pay down a liability account of the loan. The interest posts to an expense account. We explain more in the full QuickBooks for Landlords training guide, including how to be a hard money lender yourself and receive loan payments from others.

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 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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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

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Introducing the Income (P & L) Statement (eBook excerpt chapter 2.07)

A free sample from chapter 2 Accounting Fundamentals of our Landlord Accounting in QuickBooks guide. Section 2.07  Introducing the Income (P & L) Statement. We hope you’ll become a customer today, or sign up for the free e-course.

An Income (Profit and Loss) Statement records revenue and expenses over a specified period of time. It indicates how Net Revenue, also called the “top line,” (received from the sale of services before expenses are taken out) is transformed into Net Income, or the “bottom line,” (the result after all revenues and expenses have been accounted for).

sample income statement p and l - landlord accounting quickbooks

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