Hi Robert, I'm so glad you found the video helpful! Yes! We offer a comprehensive, end to end course for setting up Quickbooks for your Real Estate Investing Business: www.incomedigs.com/reab. Along with the course, you'll gain access to weekly Q&A sessions and a community wherein I answer specific questions from students. The answers to these questions can come in the form of text, video demos, a live answer on the Q&A or a combo of all three. While we do offer custom coaching/ setup as well...I always recommend checking out the course first....as this typically provides the greatest "bank for your buck". Let me know if you have any specific questions! nick@incomedigs.com
Hey! Thanks for watching! I would typically recommend QBO Plus. Especially is you have ~3+ properties. If you have less...you can get away with simple start for a bit...ready to upgrade as your business scales!
Thank you for this! My wife and I have been pulling our hair out trying to find great information to help us with managing our rehab expenses! great video on how to setup
I really enjoy your videos. I was wondering if you ever did a video on how to record a sale in quickbooks online when you partner on a deal and split the proceeds.
Hi There! Not sure if we have anything specific on this...but the main reason would be that not much changes. You would still record the sale to the "business as a whole". Treat the entire project to the business itself....ensure that the project is recorded in full. Then, if proceeds need to be split/ distributed to partners, you would record separate Owner's Equity Withdrawals. We discuss dealing with partners in great detail in our end to end training course, Real Estate Accounting Bootcamp: incomedigs.com/reab
What are your approach in putting the costs on the balance sheet first then moving over to income statement at the time of the sale? Would the projects feature still be useful during rehab stage even though it hits balance sheet first?
Hello Nick! I love your videos. I am not an accountant. I know some basics in accounting. Your videos are comprehensible, short, informative and interesting. My question: When you flip a 2 appartement building, during the renovation of one of them, how do you handle the revenu of the other? Does it reduce the holding costs? Regards!
Hey! Thanks so much for watching and for the kind words! To your question..... I would put the revenue to "Rental Income". Its a little rare for a flip to have revenue before the sale..but in your case it works. I wouldn't reduce the holding costs...that kind of tells a bit of a different story. I like to say..."just tell the truth". In this case...its rental income...so treat it as such! We actually dig into an example like this in our end to end course, real estate accounting bootcamp. Definitely recommend checking it out! bit.ly/3xaBohM
Appreciating your content, thank you. Why do you decide to do it all on the PNL vs. the BalSht? I was taught that we want to have the Renovation costs and RE acquisition costs on the BalSht but you seem to show consistently everything on the PNL. How do you decided when a property costs go on the PNL vs. the BalSht?
Hi Tarja! thanks for your question! The important thing here: Every business is different...and everyone has different reporting needs. Remember that Quickbooks, first and formost, is a tool to help you manage your finances and make key business decisions. It just so happens that QBO can help us with taxes...but that is secondary. So, when it comes to whether or not your construction costs go to your P&L vs your Balance sheet...it depends on your business and what you want to see. The technique in this video is setup specifically for flippers who want to see their actual costs in a similar format to the format they use for analyzing properties. You may choose to have everything go to the balance sheet. Regardless of your strategy throughout the year, come year's end, you may need to make some reconciling transactions to move items from P&L to balance sheet. this would be specifically for tax purposes. So how do you know what will go to balance sheet (CapEx) vs. P&L? For that, I advise you to have a discussion with your accountant. They will help you determine what will be capitalized and what will be deducted. The good news is that its easy to transfer back/ forth via journal entries.
Hey! I think it might be a bit different....Its evolved a bit over the years. This video is a bit dated. The one on the website is the most up to date!
Nick, this is awesome!!! We have been trying to figure out the easiest, cleanest way to organize our Rehabs and this looks like the way to do it! 2 questions: 1) Should we still use Class (by property Address) 2) What is an easy way to put an Estimated ARV while you are rehabbing... i am thinking creating a fake ARV invoice that we use during the project... then once we sell the property, delete the invoice... thoughts?
Hi There...thanks for watching! Yes. I still use Class to track by property. I find that my Quarterly/ Annual reporting of my P&L still looks cleaner when I use Class for Property. Technically, you are "doubling" your effort as the project is already tracking this...but I find that the Project really muddles the p&L with way too many columns. As for the ARV...your idea makes sense. You would be using a "phantom" Sale as a placeholder to show your projected overall project Profit. My suggestion here would be to create a single journal entry in which you Credit Revenue (I use an account: "Realized Gains" or "Sale of Property) and indicate the class and project. Then, on the next line, Debit that same Revenue account but leave the class/ project blank. This will ensure that your project receives the Revenue line item but your overall books are not inflated. So, when looking at just the project report, you see the entire P&L. But, if looking at your business as a whole, you are not over-stating your revenue before its realized. Then, per your suggestion, you would delete this entry and replace with the actual sale once it closes. Great Questions!
Very informative video! Is there a way to assign the product/service detail directly from the bank feed page? Instead of manually having to assign the product/service to each manual expense created separately and then matching it?
There is now!!! QBO literally just released this feature ~3 weeks ago or so! Check it out...if products/ services turned on for expenses, the drop down should now appear in your bank feed!
This is great! Super helpful. If your Investment bank account is linked to QB, can you easily link all of your expenses (instead of manually adding a journal entry)?
Hey! Thanks for watching...so glad you found the video helpful! Yes...especially for the every day expenses associated with the flip. For the purchase/ sale...you could technically use the bank feed. However, for these more "complicated" transactions, I typically recommend creating the journal entry first...and then "match" to the bank feed. This ensures that you can include all the relevant details for each transaction. We go through a few great tactics for this in our end to end course: Real Estate Accounting Bootcamp. Check it out! www.incomedigs.com/reab2
Hi! Great Content! Few Questions: 1: Where would we add Hard money lender Origination fee during purchase? 2: Let's say we have to extend the loan to 3 additional months and that costs additional 1 point with raise of interest to .5%, how would this be noted? 3: Should we be organizing any bank charges to correlate or connect directly to this process? Mostly these dollar amount entries are manually placed, should we connect the actual charges from the bank?
Hi There! Thanks for watching! 1. The Hard Money origination fee is equivalent to "Points". I would charge this to Debit Service/ Interest expenses 2. You wouldn't record the interest rate changing in QBO. Simply recorded the added points and the interest expenses to Debit Service as incurred 3. Yes! I definitely recommend connecting your bank accounts. This will help to ensure that you capture all expenses. I demonstrate by adding manually...you would use the same journal entries and then you can "match" to your banking feed. We go over this and much more in our end to end course! www.incomedigs.com/reab2
Thank you for this, Nick! It's been very helpful. Two questions: 1. Are you just deleting the journalized transactions when they show up on your bank feed? 2. How would you journalize selling costs paid with a credit card?
Hi Latrice...thanks for your question! This is one of the most common missteps with the Bank Feed...don't forget about "Matching"! No, certainly do not delete the hard work you put into your journal entry...instead, "Match" it to the entry coming through your bank feed. Closing costs paid with a credit card...no need for a "Journal Entry". Simply add an expense indicating the Closing Costs account.
Hello Nick! Quick question on the Profit box within Projects. Is there a way to add a line item under the Profit box? For example, if you made $37,952.94 and you're splitting the profit with a partner, how would you record that? And if you're paying yourself back, let's just say the closing costs when you purchased it, how would you record that as well?
Hey! Awesome question! I would create 1 or 2 "Other Expenses" for "Profit distribution - Part 1". This is cool b/c it keeps your Net Operating Income in tact. Because they are "other expenses, they show up and total below the NOI line. That then gives you your "Net Profit". We discuss this strategy in great detail in our end to end course! Definitely check it out! www.incomedigs.com/reab3
Interesting approach. However, in order to generate an interim P & L on any date, you would have to either reclass all of the expenses to the balance sheet, or generate a revenue entry equal to the sum of all of the recorded expenses for flips that are in process as of the date of your report. Reclass at year-end with reversing entry as you propose is fairly straightforward, but having to reclass just to pull an interim P & L seems cumbersome. Perhaps you have a different approach for generating interim financial statements? I find it easier to reconcile the balance sheet rather than the P & L, so I prefer to accumulate all flip costs on the balance sheet and then record a COGS journal entry. We currently use Peachtree and that approach works well with jobs/phases/cost codes. Do you have a QB setup that records flip costs to the balance sheet?
Hey! Thanks for watching and a great point! Yes! We cover the transfer to the balance sheet! Generally, most flippers (students of mine) prefer to track flip expenses to the P&L initially...and then transfer to the balance sheet at various increments. Some just do it at the end of the year....many would do it monthly. I just recorded a video on this exact topic: ruclips.net/video/qdESFYUS_u8/видео.html However! The video is all distorted...so I need to re-record. I will say though...we go over this in great detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
Does your calculators work with Mac products? The calculator did not calculate once the information was plugged in. Thanks in advance for your assistance.
Awesome, video Nick! I have set everything up this way now but wondering if you have figured out a way to record a return against something on the products and services list? For instance if I buy tile for a bathroom and then decide to return that tile and buy a different tile instead I can return it against the Rehab expense account but when I look at my break down of where I spent my money on that project my bathroom expenses are over inflated because it is accounting for both tile purchases.
Hi There! Thanks for watching! Good question...For credit card purchases, its really easy! Create a new "Credit Card Credit". This will bring up a screen that looks exactly the same as an expense. Simply log to the appropriate product/ service. For cash/ Bank charges its a bit more tedious. You would create a vendor credit...and then use a journal entry to "move" the vendor credit to your bank account.
Hi! Thanks for watching! You would offset mileage with "owner's Equity". Think of the transaction this way: When the miles are incurred, you as the owner are "investing" them into the business. To capture that expense, you would record it as Equity. Its the same as if you were to use your personal bank account to purchase construction materials. You would offset w/ owner's equity as well.
Hi Helen, The Property Tax should be recorded as "Holding Costs". This is a COGS that will be included in the overall project expenses. It is possible that you will be credited property tax expenses if you received this credit at closing. But over the course of the project, you will likely have a positive Expense for property taxes...which will be categorized as Holding Costs.
Hi Nick, tremendous video! Some great hacks to get this right the first time. I used this video to assist a home flipper client to restructure his books. In regards to the product/service categories, I added a leading zero to the category description. I think this will solve the sort order when viewing the items in the project area - I think that you had concern about the order of rehab costs showing up in the project side. Thanks!
@@circlesquare6152 Hey! I don't have any videos specifically on analyzing flip properties. What I demonstrate here is just an example. What we are trying to do in QBO is mimic our tracking to our planning. So whatever you use to analyze flip properties, you would want to mirror those categories in your Chart of Accounts.
I just took on a flip client who is just starting and will only be flipping one house at a time. Can we just use customer and not use project? Trying to keep cost down with regards to the Quickbooks subscription and don’t want to enable projects if we don’t have to. Furthermore, can you provide a list of your products and services?
Hi Andrea....thanks for watching! Yes! You can certainly just use Customers. You just won't get the reporting that comes with "Projects". You can download the Products/ Services list directly from our website: www.incomedigs.com/
Great Video. How do you categorize Down Payments? Would it be part of buying costs? It comes out checking account when you wire so I am confused how we would show both, an increase in buying cost and a deduction from bank account.
Hey Mike...thanks for watching. Your down payment will be allocated toward an "Other asset Account". something like "Purchase Deposits". After submitting the deposit...before purchasing the property, this account will have a positive balance. The money is still yours...you just don't have control over it. When you close on the purchase of the property, you will credit this "Other Asset" account to bring it to 0. Those funds will then be deducted from the total $ needed to close. We discuss this in great detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
Thanks so much for posting this. So using this, you're putting the purchase directly into cost of goods sold so the balance sheet will have "negative equity" for the property until it is sold. Am I looking at that correctly?
Yes....at least initially. We are using COGS so that we can show a nice, neat P&L report for the project that matches our Analysis. However, we can always transfer the Purchase and other COGS over to the balance sheet to bring our books back in line. We can do all of this without impacting our profitability report on the Projects tab. Its a "best of both worlds" scenario.
@@crystaldavidson2795 You would make a relatively simple journal entry: Debit Fixed Assets - Potentially separate accounts for Building, Closing Costs, Rehab Costs Credit the COGS categories that you recorded transactions on throughout the year. You would have a line for every COGS category that has a non-zero balance.
I do have to agree with all the comments below, I just wanted to first say thank you for the knowledge that you provide here on your channel and in a way that I can actually understand!!!! I do have one question for you. My husband and I have just purchased our first rehab but our private lender just paid cash for it directly to the bank and the amount never touched my bank account. However the home is in my husbands and I's name. I am totally clueless on how to record this into QuickBooks and to what accounts that might look like.
Thanks for the feedback and thanks for watching! Good question! On the transaction, you would simply replace any "cash due at closing"...which would be a credit with: "Hard Money Loan". The cash never touched your bank account...but the lender has definitely lended you the funds. Purchase Price - XXX (Debit) Closing Costs - XXX (Debit) Hard Money Loan - XXX (Credit)
Great content! Thank you so much for sharing all the details! I'm watching a bunch of videos and as you mentioned everyone does it a little differently. What's the reasoning behind categorizing items as "cost of goods sold" instead of "other current assets" or vice-versa?
Somehow I missed this! Sorry Michael! The reason to use COGS would be to get a P&L for your flip that closely matches your analysis. When you are planning out a flip, you are likely looking at SALE PRICE - PURCHASE PRICE - PURCHASE COSTS - HOLDINGS COSTS - REHAB COSTS - SELLING COSTS = PROFIT Using COGS is a way to replicating that same "Income Statement" approach.
@@Incomedigs coming back to this as I'm seeing several other RUclips videos putting under an asset account. Shouldn't this be an asset though? is this how you really do all your flips by putting them all under COGS. I'm also reading lots of comments where nothing should hit the P&L, until the house sells and then move everything to P&L.
@@xdbooboo1 Hi There! Thanks for watching! The first thing to emphasize is that there is no "one size fits all" when it comes to using QBO. Even if your CPA wants to make it seem like there is only "one right way". QBO is a tool, first and foremost, to help you run your business. To that end, I would encourage you to use whichever strategy works best for your businesses. When I work with Flippers, I find that most of these investors are interested in seeing a P&L throughout their project. With this in mind, we will typically use the COGS method out of the gate. You can certainly adjust the approach a bit to meet your needs. One thing to remember: You will not get much use out of the "Projects" portal unless you are categorizing your expenses as either COGS or Expenses. Fixed/ Current Assets will not appear in the projects portal. We discuss many various strategies in our end to end course, Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
I know this is about 1.5 years old, but for Quickbooks Simple Start, is this still a good tutorial? It does not have the projects feature unfortunately, which seems like a big part of this tutorial. Thanks in advance.
Hi Christopher....correct, you would not have the projects features. However, you could still use "customer" for all the transactions. You wouldn't have the "Projects" portal like I display here...but the functionality would be the same.
Hi! Thanks for watching. If you are managing the flip, you'll be acting like a General Contractor. With that in mind, you would likely have COGS accounts for: Materials, Labor, Subcontractors. Your Products and Services would all map there accordingly. You would not log the purchase, buying costs, holding costs. You would also have Revenue accounts to indicate the Income from your clients. This would have accounts like: GC Services, Billable Expenses Income, etc. I would encourage you to watch this video: ruclips.net/video/42TQOGxcgO4/видео.html It is more geared toward working for third parties (not your own properties)
Hi Nick, I love your video and sheet. Quick question about the labels in the Loan Details section; why do you call the two posts Projected Total Income and Projected Annualized Return? It looks to me like it's the Projected Total Debt Service and Projected Annualized Interest.
Hey Andreas...good question! The labels are as such in the analysis because its intended to be presented to a lender. The idea is that we analyze the property and provide the summary to a lender...clearly indicating the projected income/ return they can expect.
Super appreciative of this information!! Thanks for posting this. I was wondering if you were rehabbing your primary residence to sell after 6 years of ownership, can you apply this same strategy and skip the purchase price or do you recommend digging up the settlement statement and starting from the purchase of the property? Thanks again and keep up the amazing content!
Hi! Thanks for watching! I don't think it would hurt to have SOMETHING in QBO for the purchase. Even if you can't find the settlement statement, just getting the purchase price would b beneficial to seeing the project as a whole.
@@Incomedigs Thanks for the reply! Can you give an example of what that journal entry could look like in this case being that the transaction is so old and the rehab is starting next week? should I just include purchase price? Anything helps thanks again!
@@boynumber6 Yes! Date: Take a guess at the purchase date. Does not have to be perfect....at least try to get the year correct Flip - Purchase Price: XXXX - Debit Opening Balance Equity: XXXX - Credit
Yes! Cost of materials as cost of good sold is perfect! Check out this more recent video where I discuss Flips on your balance sheet vs P&L: studio.ruclips.net/user/videoaRL1MDYFMZ4/edit You can put the purchase price on your P&L or your balance sheet initially...If you still own the property at year end, you'll want the flip purchase to show up on your Balance sheet for taxes. Also check out our end to end course! www.incomedigs.com/reab2
What would be the flaw of using "customers" as the name of the seller you purchased the property from (especially since you may buy several from the same seller) and adding the property address for the "projects" to keep track of everything? Seems like it might make things cleaner on the books and now you're able to keep track of both? What is the flaw in this logic, if any?
Hi Oscar...thanks for watching! Yes...that strategy would work. Keep in mind that when you create a P&L with Customers as the columns...QBO will automatically display the parent customer as well...in this case the seller. Might be a good thing...might be a bad thing. But generally speaking...yes, you can certainly add projects as sub-customers of the Seller.
I have QBO Online, not the PLUS version. It seems only PLUS version has projects. Is there other ways to get around the "Project" part and use some alternative method?
Hi Shaila...thanks for watching! Yes, you can simply use "customer" to manage your flips. You won't get the fancy "projects portal", but you can still filter your P&L by Customer to see profitability by project.
Thank You for this video. I am confused though - Are the bank feeds pretty much useless with this method? I realized I can't categorize anything under their appropriate product or service. Is it possible to do this without manually entering each transaction?
Hi There! You touch on one of my biggest pet peeves w/ QBO! You are correct. From the banking feed, you cannot use Products/ Services. However, I would not say the bank feed is useless. 1. Remember that it is only construction transactions for which you would use the Products/ Services. Any other transactions would still be categorized via the bank Feed 2. I recommend using the bank feed as a "double check" mechanism.. As the expenses come in, forward receipts to a VA/ bookkeeper. Have the Boookkeper add those transactions before they hit the bank feed via an "Expense" transaction (which allows Products & Services). Then, as the transaction hits the bank feed, QBO will recommend a match to the existing transaction. That suggestion will serve as validation that the expense was entered correctly. It's not ideal...but I try to look at it as a way for me to improve my receipt acceptance process.
Hey! Curious if in the past two years, anything has changed in QBO regarding this? I just watched this full video and it has been so helpful. I just connected and imported all our bank feeds from our recent flip and would love to save time if possible, instead of manually adding all the expenses and doing the "match" feature. Curious if you've found a work around. Thanks for your video and advice!@@Incomedigs
@@klk1993 thanks for watching! Unfortunately....No. We still have to add these transactions manually! I'm so glad you found the video useful. We discuss some workarounds and other best practices in our end to end course: www.incomedigs.com/reab2
Just re-watched because it's so helpful! What if I received a $50K rehab loan for rental (not flip), I categorize it under 'Other Current Liability', then when I re-pay it do I categorize the re-payment as the same thing?
Hey Chris...Yes! When you first categorize the incoming loan, the balance will appear as a liability on your balance sheet. You may make interest payments on this loan during the rehab. If so, these interest payments would be categorized as expenses (or COGS). They would not reduce the principal of the loan. When you prepay, you categorize as the same liability account...which will bring the balance down to 0.
Hey Nick, Can I create just one customer for each category of projects (FLIPS,WHOLES SALES,RENTALS,CLIENTS) and Put all projects related to that category under the same customer?
Hi there...yes, you could do that. In this case, your category would be the "Parent" w/ all specific projects falling underneath the type. That is just fine.
Hi Kara...thanks for watching! This depends on your partnership agreement...but in general terms: Net Profit. Your Cash back is not necessarily your profit. The cash back takes into consideration financing on the property. Also, if you paid cash for renovations, the cash you receive back would be more than your profit. In almost every case the profit would be the determining factor on what to split.
Thank you! this is very helpful. Is there any way to incorporate the budgeted amount in each category (plumbing, electric, etc) to help track whether you are on target? or does that always have to be on a separate spreadsheet?
Hi Evelyn, unfortunately, QBO does not have a great "project by project" budgeting feature. You would likely need a separate spreadsheet. There are supplemental project mgmt tools that integrate w/ QBO...incorporating a "budget vs. actual" functionality. Specifically, Buildertrend will do this. This video demonstrates a really quick, repeatable approach to exporting to excel or google sheets: ruclips.net/video/sNal44_yIEI/видео.html
Minor question, but I noticed you have the "use for billable expenses" checked when you are in your chart of "accounts > new" pop-up box. Mine doesn't have that option. Do you know how to activate that? Great video !
Hi Heath! Thanks for the feedback! This feature should be available on QBO Plus and beyond....and can be turned on in your Settings. Under your settings, in "Expenses" there should be an option to "Track Billable Expenses to Customers". If that is turned on, you should have the option when creating new COA accounts.
This was so helpful, thank you so much for sharing! When I do a journal entry that includes the purchase price, how would I categorize a construction holdback in that journal entry? It's not buying cost and it's not really a holding cost either.
Hi Jody! Thanks for watching...and great question! The Construction holdback is typically tied to a Loan. So, when you purchase the property, you will almost certainly Credit a Liability account (E.g. Hard Money Loan). With a standard loan, you would credit your Liability account and Debit the checking account that receives the cash. However, with a construction loan, you don't receive the cash...at least not yet! So, I suggest you setup an "Other Asset" account to house the Construction Holdback. The money is yours...you just can't touch it yet. Once your lender releases a draw, you would Credit your Other Asset Account and Debit your checking account. Make sense? We discuss this in great detail in our end to end course: incomedigs.com/reab
I just realized that the sale of a property should zero out the purchase accounts - understood. However, the first BK didn't do this. I need to do journal entries to do this after the fact. In one instance, a construction escrow account made interest before it was disbursed - how do I balance this.
Hey Marlaine, Thanks for watching! Was the interest disbursed to the customer? If so, the disbursement would likely be split into at least 2 lines: 1 Bank account and 2 interest income. If you are dealing with a lot of old transactions., it might make sense just to do a "cleaning" journal entry to 0 out any accounts associated with closed/ sold accounts. You can then offset this transaction with an equity account (e.g. open balance equity)
Can you clarify why it is better to classify expenses under "Item Details: Product/Service" and not under "Category details: Category"? In either section, I am able to identify my "Customer/Project" (which are the various flip jobs I am tracking)? Thanks!
Hi! Absolutely! The "Items Table" provides an added level of detail...an additional dimension to our reporting. We can have a detailed list of categories/ cost codes/ products/ services...that all map to a category. This allows us to track actuals at the same level of detail that we estimate. It also helps to keep our COA clean. For example: Rough Electric, Rough Plumbing, Cabinetry, etc....these categories are too specific for the P&L. We can set these up as "Products and Services" (items)...and map them to 1-2 accounts on the P&L. Our P&L will stay neat and concise...and we can drill down into these expenses to see the details by cost code. Its the best of both worlds! We discuss this strategy in detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
@@Incomedigs Great. Thank you for your quick response. As a follow-up, do you only use Products/Services (Items Table) for Rehab expenses? Do you also use Products/Services for things like Buying Costs, Holding Costs, Selling Costs & Debt Service? Why or why not? Thanks!
@@macclelland Good question....and yes! We typically just use Products/ Services for Rehab expenses. The reason is that we can benefit from the additional detail that products/ services provide. We have 1-2 main categories that show up on our P&L...but when we drill down we get to see some really useful detail (rough electric, rough plumbing etc). With the other cost categories, there is not as much of a benefit. Closing costs for example: Do we care how much went to title charges vs appraisals vs lawyers?....Maybe...but probably not. Even if we did, the list of detailed categories is small enough that we could likely get away with Category->Sub Category on the P&L. We discuss this in great detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
Hi Matt, thanks for the video. It was exactly what I was looking for in order to figure out how to organize our flips. Quick question.... Since the IRS treats "flippers" just like "dealers", how do I match/input my expenses from bank feed to the procect, so everything shows on my P&L the year I actuall sell the property? My accountant says that I can claim the deductions the year I sell, instead of claim them the year before and then be stuck with the huge profit the year I sell (if that makes sense). TIA
Hi! Thanks for watching! What you’ll do is “transfer” all your COGS to your balance sheet at the end of the year. Then, the next year, when you sell the property, you’ll move everything back to a nice neat P&L for the whole project. We cover this strategy in great detail in our end to end course, Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
@@Incomedigs Sweet! How do you classify the transaction of the funds being deposited that I receive from the lawyer after the sale? Does it get classified to the project?
@@mattsmith104 Just depends on what makes up the funds. If they are the sales proceeds, they would have been accounted for in the journal entry of the sale. "Net Cash at Closing" would be a Debit to your checking account. If you don't receive them on the day of closing...not a big deal. I would keep it within the single journal entry. Then, as the funds hit your bank account, you can "match" the bank transaction to the journal entry. If the check from your lawyer is a bit different....e.g. Tax credits that weren't accounted for on the closing statement....you would just categorize those separately as they come in. They would get classified to the project under the COGS that they are related to. If you are receiving funds, this is the equivalent of getting a "refund"....it acts as a "Negative expense"
@@Av-yf6nn Thanks for watching! As a reminder, we have our end to end course available that covers everything related to RE Accounting! www.incomedigs.com/reab2
Hi Nick! Great Video! Quick questions/clarification. If we don't sell the property at end of year, do we put those expenses under inventory and it'll be on balance sheet? & then create another journal entry to transfer the inventory to COGS accounts once the flipped property is sold?
Yes! Exactly. You could actually "move" from Balance sheet to COGS on 1/1/XXX (of the next year) and go back to tracking everything on the P&L. Moving to Inventory for 12/31/XXX (past year) checks the box for taxes. Many flippers like to consistently track everything on the P&L. For that reason, this quick "back and forth" is a good way to accomplish multiple goals.
@@SydetraGordon-q4m Up to you! If you move it to COGS...your "Revenue" will equal your Sales Price. If it stays on the balance sheet, your Revenue equals Sales Price - Basis. In the end, the net profit will be the same.
just seeing this, sorry! I would prefer to move it to COGS.. just not sure what kind of account I would move it to I actually moved it to Purchase Price COGS account. & revenue will be the sales price property sold after reno right? In your course, do you go over completing taxes from flipping homes/or do any videos related?@@Incomedigs
Hi Danika! While I'm not an expert in QB Desktop, you should be able to get the same setup. You will use "Items" instead of Products and Services. You will be able to differentiate properties through Classes as well.
Hi There...yes! QBO works great for AirBnB. I have several students in Real Estate Accounting Bootcamp who have Short Term rentals as well as Long term...I haven't done any specific coaching..but many of the concepts of long-term rentals apply: www.incomedigs.com/reab
Hi Sergio...thanks for watching! If you don't have the Projects feature, you can still set this up with the "Customer" field. Simply record all your projects as "Customer". You will not have the slick "Projects" portal....but you should still be able to draw up all the relevant reports. If you are new to QBO, I highly suggest checking out our end to end course, Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
Fantastic, informative, and very useful. Thanks! Question: In Journal Entry, I'm receiving an error message asking to balance debits and credits. Is there a general workaround to this, must I always balance in Journal? Don't want to tie the credit to a specific checking account just yet. Thanks!
Hey there...thanks for watching! Yes...you must always match Debits to Credits in a journal entry. This is a fundamental element of any accounting software. The software needs to answer the question: "where did the money come from?" and "where did the money go". If QBO allowed you to have unmatching Debits/ Credits, you would have a mismatched balance sheet. If the funds for a credit card payment came from a personal account...you could simply use "Owner Equity" to account for "Where did the money come from".
Hi! Thanks for watching! I would do any tax prep calculation outside of QBO. QBO will tell you the profit to put into that calculation. You would need to consider other factors: Other income sources, deductions, etc. QBO will deliver key data to help you with that calculation.
Hi Jesse...thanks for watching. Rental properties should be logged against Fixed Assets. You would have subcategories for 1. Land 2. Building 3. Closing Costs 4. Capital Improvements
@@jessejimenez5232 good question! I suggest sticking with your initial assumption or whatever route you usually take. You can always move the balances later...if/ when you decide to change your strategy.
Hi Bryce, If you have essentials, you would likely need to use "Customers" to track expenses specific to a property. This may only be done using journal entries...as QBO has recently removed the ability to tag customers on regular expenses.
Hi There! Thanks for watching! The only way to have costs show up on the project is to categorize to Expenses or COGS. Of course this will go on your P&L...not your balance sheet. However, you can track to COGS and then transfer balances over to your balance sheet. We go into this in great detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
How does this affect the Balance Sheet report doing it this way? Shouldn't properties should be on the balance sheet as Asset? If I do it as an Income account, and I need to run a Balance Sheet Report, won't it be wrong? I see another reply where you suggest creating an end-of-year entry or something... but what if I need to run a report before year end?
Hi C.S....thanks for watching! Whether your properties hit the P&L or the Balance Sheet is a choice...at least throughout the year as you are operating your business. Many FLIP investors prefer to have the all costs associated with the property, including the purchase, listed in the P&L. This leads to a P&L that matches the analysis. However, you can certainly log your purchase and even renovations to your balance sheet. In theory, this is "More accurate"...but it all comes down to the reporting you want to see to help you run your business. At the end of a tax year, you would almost certainly transfer any In-Progress flips to your balance sheet. You would likely wait to take any deductions on the project until it is complete. Remember: QBO is software to help you run your business. It just so happens that it can help with taxes too. You can pick and choose strategies that make the best sense for the reporting you need.
Thanks Matt! I will absolutely take you up on that! Let me know if you get stuck with anything else...also please check out our end to end course! www.incomedigs.com/reab2
Thank you for this video. I have a small house flipping business, I and used this video to help me to categorize my expenses for each house by using customers in QuickBooks Desktop Pro. Before I just used one inventory account for each house, which obviously didn't provide much detailed reporting. I'm having an issue, though, with the Profit and Loss Report showing columns by Customer:Job. This report works perfectly for the items assigned to a customer, but doesn't show most of my general transactions that aren't assigned to a customer (eg computers, tools, office supplies). It shows a random few of those transactions under the "no name" column, but most are entirely excluded from the report. So this report isn't as helpful because the overall net income is wrong, doesn't agree to the net income on the regular profit/loss report without columns. Just thought I'd check to see if you've run into this issue before. I called QuickBooks help and they didn't know what to do. Thanks!
Hey Todd, Thanks for reaching out! Your Profit and Loss should have a column at the very far right that indicates "Not Specified". If you are not seeing the totals that you are expecting, it is likely that you have some sort of filter that is reducing your results. Here is my suggestion....start from scratch with the report. Go to the standard reports, select profit and loss. By default, QBO will include everything with no columns...just the total. Make sure your time frame is correct. Then, click "Display Columns as" and indicate "Customer". If you follow those steps, QBO should not be limiting your results in any way. You haven't set any filters other than the date. That is all I can think of. I haven't encountered this problem in my own books or in working with clients. Let me know how that goes. Thanks...Nick.
@@Incomedigs Thanks for the reply. I do have a column on the far right, it's called "No name." A few random transactions are showing there, but the vast majority are not. No other filters on besides "All income and expense accounts." No worries. It's frustrating that it doesn't work, but I can make do. The report without columns works fine, I can see the totals of those general expenses there. Thank you
Hi There...thanks for watching! When you first establish the loan, you will set up an "Other Asset" for the construction/ loan escrow. The cash sits there until you receive draws. Once you receive a draw, create a journal entry where you debit your checking account and Credit your construction/ Loan escrow. We discuss this strategy in great detail in our end to end course: www.incomedigs.com/reab2
Hey Adam...thanks for watching! For a Hard Money Loan, I would track it as a Liability...typically "Current" if I expect to pay it back within ~1 year. For detail type, I would just use something like "Notes Payable"
How do you account properly for a flip that overlaps in to two fiscal years? Why wouldn't you set up the house as an inventory item and then add "parts" to the item and then run it through as finished goods at time of sale?
Glenn brings up a good point (which we discussed over the phone last week!) You can certainly use inventory for your flips. I personally like to utilize Revenue and COGS...but using Inventory out of the gate is great option!
Hi Lina...thanks for the question! Draws will not impact the Profit and Loss at all. They are not income...they are not expenses. They are simply "balance sheet transactions". Think of your Draws as a transfer from one bank account to another. When your construction loan is funded, a % of the loan is stored in an escrow account to be paid out in draws. At the time of funding the loan, you should put this amount in an "Other current Asset" account. Think of this account as a bank account that you own, but you can't control. It's your money...you took a loan out for that amt. The bank just wants to make sure you are building in order to release it. When you get a draw, you would simply debit your bank account and credit the draw account. We talk about this in great detail in the community and live q&a's included with our end to end course...real estate accounting bootcamp: www.incomedigs.com/reab
My boss needs the property to show as an asset on his balance sheet. If I show it here as a liability it isn't an asset. How do I show as an asset instead?
Hi Marlaine! Thanks for watching! In this example, the cost of the property is actually shown as an Expense/ COGS. This technique would only be used for "quick flips". Flips that are not in your books for long. For anything that you want to show on your balance sheet...you would have accounts setup to differentiate these assets. Simply create the following asset accounts: 1. Land 2. Purchase Price 3. Closing Costs 4. Capital Improvements. All would be assets! You would debit these asset s when the property is purchased.
Very helpful, Thank you Nick! When you create an expense with products and services that would go towards the "Flips - Rehab Costs" account, would you then "exclude" those transactions in your bank feed? Also, when creating a journal entry with a line that debits interest paid to lender, how can we also assign this transaction to a vendor and not only a project? Goal is to be able to track the interest amount paid to the private lender by the end of the year.
Hi Andrew...thanks for watching....Two great questions! 1. No need to "exclude". Instead, use the "Match" function. This gives us the best of both worlds. The transaction is "double checked" by the system suggesting a match on the bank feed. Matching will not duplicate the entry...just assign the existing transaction to a downloaded bank transaction. 2. Unfortunately, on a journal entry, we only have 1 shot at the "Name" field. QBO Does not give us a spot for entering both the customer and the vendor. This is super annoying...and really one of the only limitations to journal entries (The other being lack of products/ services). You would need a supplemental transaction as a work around. 1 way to do it would be to create a separate journal on your closing date where you Credit interest with the name blank and Debit interest with name populated to the vendor. This specific transaction will be Net 0 to your books...and will not influence project reporting. However, the interest paid to the vendor will be tracked for your year-end 1099. Of course another "solution' would be to use class instead of customer....but that is a major change. I would prefer the workaround before completely changing your setup.
@@Incomedigs Thanks for responding man! This is super helpful. 1. In some cases I would be dividing a payment that I did to several products/services when I manually add the expense. That's why I thought about excluding because a match wouldn't be possible with the amounts being different. (i.e. When I pay the GC a draw of $1,000 for Lighting Fixtures and Landscaping, it comes to the bank feed as a large transfer while I manually add the expense as $500 in "lighting" and $500 in "landscaping".) Unless there's a way to use the split feature and put a larger purchase into several categories? or would you just exclude in such cases? 2. That was exactly my thought! I'll do that from now on. Thank you so much.
@@andrewsarrouf7735 This is the exact scenario. Within an "Expense" or a "Check", you have the ability to break the expense down into 1 or more "items" (products/ services). All of those will add up to the total withdrawal from your bank. That total is all that matters on the match. As long as the total of the manually added expense = the total transaction amt coming through the bank...you can use the "Match" function.
Hey some quick questions - how do you track the assets if they have not been sold in that particular year? and how do you track the depreciation on it? And what about if the asset did not sell in that particular year? Do you still claim the Improvement Expense in that particular year?
Hi Saurabh...thanks for your question! If the asset was purchased/ sold in the same year, there is no reason to track depreciation. If the asset did not sell within the year it was purchased, must CPAs would recommend you hold off on deducting those Flip-related expenses until the following year. The expenses would go on your balance sheet as an asset. Again, no reason to depreciate as you will be selling the property quickly. That is generally how its done. We discuss this and many other topics in our end to end training: incomedigs.com/reab
@@Incomedigs Can you explain how to postpone deducting the rehab expenses until the following year since they will be on the Cash Basis P&L? My client's business began in 2020; are rehab companies topically accrual instead of cash basis?
@@anitagreenwalt5704 Sure! The technique is to create a single journal entry at year end to move your rehab expenses from your P&L to your balance sheet. You'll need an asset account: E.g. "Flips in Progress". Create a journal entry as of the last day of the year (12/31/2020) wherein you Debit the new asset account and credit your Expenses account(s). This will take the value spent on your rehab out of the P&L and into your Assets.
Outstanding tutorial. Thank you so much for that. Question, I am also involved in the Tract/spec homebuilding business. Would you say I can use the same account system for those sectors or should I have a different approach?
I just brought quickbooks desktop pro 2020 . i was looking to set up my first flip house and my quickbooks doesn't match with yours. pulling my hair out! i'm new to quickbooks
I think I was able to figure out how to do it in the desktop version. Basically you need to set up your Chart of Accounts first and then create customer with a Job. Under the customer-Job you will enter the property address and track all costs from there. To record the purchase you use a Journal Entry and pick the Job name (Address). When he says Products & Services those are just recording the expenses. When you sell the house you will create another J.E. and record using his method. You can then go to the reports and run a P&L by Job. For me that worked. Good Luck!
Your videos are great. I'm switching from using Categories to Products and Services so that it's compatible with Builder Trend. When uploading scanned receipts, do you know if it's possible to attach the receipt directly to a Product & Service from the from the initial receipt scan page? I can attach it to my expense category but then have to go back into the transaction and change it to the Product and Service, thus doubling my efforts. Thanks in advance!
Hey Daniel..thanks for watching! Unfortunately, you've discovered one of my all time pet peeves with QBO: The answer is No. From both the "Receipts" page and the "Banking" page, you are only able to capture the "Category" of the transaction. This has been the case for some time...but I am hopeful a change will come soon. I've curtailed the extra effort with a well-defined process...aided by my VA. Here is what we do: - Our employees upload all receipts to a designated Slack channel...indicating the job/ expense code for the expense (Slack is just one option...you could use Drive, QBO Receipts, Dropbox, etc) - My VA will proactively add these transactions as "expenses" in QBO - As the transaction hits the Credit Card/ Bank Account Fee (Typically 1-2 days later), QBO will suggest a "Match" as the transaction already exists in the system. My VA clicks "Match", and we are all set. This system serves a bit as a "Double Check"....if transactions appear in the feed that do not have a "Match" suggestion...then they were either entered incorrectly or an expense slipped through the cracks without a receipt. My VA will then investigate...contacting the employee who made the transaction to provide the receipt. Certainly some double work involved. However, we decided to take the negative that QBO gave us (no quick Product/ Service allocation), and turn it into a positive "reconciling" process through which we can maintain close to 100% receipt compliance. Let me know what you think...Of course I will be ready with a new video if/ when QBO makes the change!
@@Incomedigs Wow thank you for the thorough answer. I haven't linked my bank accounts yet but it looks like it'd be worth doing. The only other thing I can think of - do you know if there's a way to sync Builder Trend cost codes with Categories rather than P&S? I actually prefer using Categories myself but am just switching to P&S to be able to link with BT.
Also, when you are matching the bank transaction to each expense, how do you assign it to the correct P&S from there? Or do you have to go into the Expense, delete the Category, and add the P&S? Thanks!
@@daniellandman2327 Hi! I don't believe that is possible. BT is only mapped to Products/ Services. You could simplify your P&S list and map each P&S to its own, unique category
@@daniellandman2327 We actually create the expenses before matching the bank transaction. Whether the transaction has "hit" the bank or not...we'll take the receipt, and add a new expense...ignoring category and only using product/ service. We then "match" it to the bank transaction when it comes in. If you were to "accept" the bank transaction...then yes, you would need to delete the category line and fill in the P&S line. Its a shame that P&S use for expenses is not as mainstream for QBO. I feel they would certainly be feeling the pressure to make it part of the receipt/ bank feed flow.
I added an additional category - 7. Flips - Payroll Expenses. When I go to the project overview that category does not show up in the middle column under costs or expense. How do I get payroll to be included in the overall project report to reflect a more accurate profit at the end of the flip?
Hi Jody...thanks for watching! First question: What "Account Type" is 7. Flips - Payroll Expense categorized as? Only Cost of Goods Sold or Expenses will show up. Also, does that account have any transactions? Only non-zero values will show up. If there are no transactions for that account/ project, it will not present itself.
@@Incomedigs I checked and it is set up as an Expense > Payroll Expense and yes, the current project has other transactions, I can see the project but not the payroll expenses rolled up into it. Any guidance to get the payroll to roll up into the overall project would be greatly appreciated!
@@jodypupecki9423 the payroll expenses for the project are likely tied to time entries. Do you have time entries for the project? I would potentially need to see your books and poke around a bit.
@@Incomedigs they are not connected to time entries as far as I know. If you're willing, let's chat offline. My email is admin@marksmuellercpa.com. Thanks!
Unfortunately I only demo with Quickbooks Online. That being said, I can answer questions related to your Desktop setup. Is there something specific you’re struggling with?
Hi Lina...thanks for watching! Your loan payment could potentially fall into more than 1 category. If you are simply paying an interest only payment for a hard money loan, you would categorize this as "Interest" (COGS account). IF you are paying interest and principal, you would split your transaction accordingly: A portion to interest, and a portion directly to your Liability account which holds the loan.
Check out my End-to-End Quickbooks Training. www.incomedigs.com/reab ($50 off w/ code RUclips50)
This might be the most informative QuickBooks real estate tutorial I’ve ever seen. I’ve watched it six times.
Hi Robert, I'm so glad you found the video helpful!
Yes! We offer a comprehensive, end to end course for setting up Quickbooks for your Real Estate Investing Business: www.incomedigs.com/reab. Along with the course, you'll gain access to weekly Q&A sessions and a community wherein I answer specific questions from students. The answers to these questions can come in the form of text, video demos, a live answer on the Q&A or a combo of all three.
While we do offer custom coaching/ setup as well...I always recommend checking out the course first....as this typically provides the greatest "bank for your buck".
Let me know if you have any specific questions! nick@incomedigs.com
THIS MAN IS GOLD AND MUST BE PROTECTED BECAUSE HIS CONTENT IS AMAZING
Lol hahahaha and His QB Online training is GOLD MAN!
Hi! Loved your video. Which Quickbooks Online Plan do you recommend?
Hey! Thanks for watching! I would typically recommend QBO Plus. Especially is you have ~3+ properties. If you have less...you can get away with simple start for a bit...ready to upgrade as your business scales!
Thank you for this! My wife and I have been pulling our hair out trying to find great information to help us with managing our rehab expenses! great video on how to setup
I really enjoy your videos. I was wondering if you ever did a video on how to record a sale in quickbooks online when you partner on a deal and split the proceeds.
Hi There! Not sure if we have anything specific on this...but the main reason would be that not much changes. You would still record the sale to the "business as a whole". Treat the entire project to the business itself....ensure that the project is recorded in full. Then, if proceeds need to be split/ distributed to partners, you would record separate Owner's Equity Withdrawals. We discuss dealing with partners in great detail in our end to end training course, Real Estate Accounting Bootcamp: incomedigs.com/reab
great video! i've been wanting to take over book keeping for our real estate business
What are your approach in putting the costs on the balance sheet first then moving over to income statement at the time of the sale? Would the projects feature still be useful during rehab stage even though it hits balance sheet first?
Unfortunately no. The only transactions that hit the projects feature are those included on the income statement.
This was a great video, thank you.
Thank you for watching!
Is there a way I can get a copy of this spread sheet? I could not find it on your website.
Hi James...can't believe I missed this! The analysis spreadsheet is available on our home page. its the "Rehab Property Analyzer": www.incomedigs.com/
Hello Nick! I love your videos. I am not an accountant. I know some basics in accounting. Your videos are comprehensible, short, informative and interesting. My question: When you flip a 2 appartement building, during the renovation of one of them, how do you handle the revenu of the other? Does it reduce the holding costs? Regards!
Hey! Thanks so much for watching and for the kind words!
To your question.....
I would put the revenue to "Rental Income". Its a little rare for a flip to have revenue before the sale..but in your case it works. I wouldn't reduce the holding costs...that kind of tells a bit of a different story. I like to say..."just tell the truth". In this case...its rental income...so treat it as such!
We actually dig into an example like this in our end to end course, real estate accounting bootcamp. Definitely recommend checking it out! bit.ly/3xaBohM
Appreciating your content, thank you. Why do you decide to do it all on the PNL vs. the BalSht? I was taught that we want to have the Renovation costs and RE acquisition costs on the BalSht but you seem to show consistently everything on the PNL. How do you decided when a property costs go on the PNL vs. the BalSht?
Hi Tarja! thanks for your question! The important thing here: Every business is different...and everyone has different reporting needs. Remember that Quickbooks, first and formost, is a tool to help you manage your finances and make key business decisions. It just so happens that QBO can help us with taxes...but that is secondary.
So, when it comes to whether or not your construction costs go to your P&L vs your Balance sheet...it depends on your business and what you want to see. The technique in this video is setup specifically for flippers who want to see their actual costs in a similar format to the format they use for analyzing properties. You may choose to have everything go to the balance sheet.
Regardless of your strategy throughout the year, come year's end, you may need to make some reconciling transactions to move items from P&L to balance sheet. this would be specifically for tax purposes.
So how do you know what will go to balance sheet (CapEx) vs. P&L? For that, I advise you to have a discussion with your accountant. They will help you determine what will be capitalized and what will be deducted. The good news is that its easy to transfer back/ forth via journal entries.
Very interesting your explanation, I would appreciate it if you can explain the same flip property explanation in quickbooks pro desktop
this would be amazing if he would do desktop version videos. I am struggling to find any insite on that software.
Is anyone else not seeing “projects” any longer? Even get a 404 error when I use the search feature and click on their own link for projects.
Hey! Not having this problem...but I'll check with our community to see if anyone else is seeing the same.
Great info.!! Thank you! Is it me or is the rehab-estimator spreadsheet you're offering different from the one in the video?
Hey! I think it might be a bit different....Its evolved a bit over the years. This video is a bit dated. The one on the website is the most up to date!
Nick, this is awesome!!! We have been trying to figure out the easiest, cleanest way to organize our Rehabs and this looks like the way to do it! 2 questions:
1) Should we still use Class (by property Address)
2) What is an easy way to put an Estimated ARV while you are rehabbing... i am thinking creating a fake ARV invoice that we use during the project... then once we sell the property, delete the invoice... thoughts?
Hi There...thanks for watching!
Yes. I still use Class to track by property. I find that my Quarterly/ Annual reporting of my P&L still looks cleaner when I use Class for Property. Technically, you are "doubling" your effort as the project is already tracking this...but I find that the Project really muddles the p&L with way too many columns.
As for the ARV...your idea makes sense. You would be using a "phantom" Sale as a placeholder to show your projected overall project Profit. My suggestion here would be to create a single journal entry in which you Credit Revenue (I use an account: "Realized Gains" or "Sale of Property) and indicate the class and project. Then, on the next line, Debit that same Revenue account but leave the class/ project blank. This will ensure that your project receives the Revenue line item but your overall books are not inflated. So, when looking at just the project report, you see the entire P&L. But, if looking at your business as a whole, you are not over-stating your revenue before its realized.
Then, per your suggestion, you would delete this entry and replace with the actual sale once it closes.
Great Questions!
Very informative video! Is there a way to assign the product/service detail directly from the bank feed page? Instead of manually having to assign the product/service to each manual expense created separately and then matching it?
There is now!!! QBO literally just released this feature ~3 weeks ago or so! Check it out...if products/ services turned on for expenses, the drop down should now appear in your bank feed!
@@Incomedigs Okay, I don't know how to turn that on, I'll ask QBO.
This is great! Super helpful. If your Investment bank account is linked to QB, can you easily link all of your expenses (instead of manually adding a journal entry)?
Hey! Thanks for watching...so glad you found the video helpful! Yes...especially for the every day expenses associated with the flip. For the purchase/ sale...you could technically use the bank feed. However, for these more "complicated" transactions, I typically recommend creating the journal entry first...and then "match" to the bank feed. This ensures that you can include all the relevant details for each transaction.
We go through a few great tactics for this in our end to end course: Real Estate Accounting Bootcamp. Check it out! www.incomedigs.com/reab2
@@Incomedigs I appreciate it!!
Hi! Great Content! Few Questions:
1: Where would we add Hard money lender Origination fee during purchase?
2: Let's say we have to extend the loan to 3 additional months and that costs additional 1 point with raise of interest to .5%, how would this be noted?
3: Should we be organizing any bank charges to correlate or connect directly to this process? Mostly these dollar amount entries are manually placed, should we connect the actual charges from the bank?
Hi There! Thanks for watching!
1. The Hard Money origination fee is equivalent to "Points". I would charge this to Debit Service/ Interest expenses
2. You wouldn't record the interest rate changing in QBO. Simply recorded the added points and the interest expenses to Debit Service as incurred
3. Yes! I definitely recommend connecting your bank accounts. This will help to ensure that you capture all expenses. I demonstrate by adding manually...you would use the same journal entries and then you can "match" to your banking feed.
We go over this and much more in our end to end course! www.incomedigs.com/reab2
Mr. Digs, I do not see the link to the products and services methodology video. Please direct me to it. thanks.
Hi Anita! Here's the playlist on using the Products and Services feature: ruclips.net/p/PL89qBCL2vU2uG03qnF_SPUw_NX7ZtauNQ
Thank you for this, Nick! It's been very helpful. Two questions: 1. Are you just deleting the journalized transactions when they show up on your bank feed? 2. How would you journalize selling costs paid with a credit card?
Hi Latrice...thanks for your question! This is one of the most common missteps with the Bank Feed...don't forget about "Matching"! No, certainly do not delete the hard work you put into your journal entry...instead, "Match" it to the entry coming through your bank feed.
Closing costs paid with a credit card...no need for a "Journal Entry". Simply add an expense indicating the Closing Costs account.
Hi Matt, thanks for this video! But where do I see the projects in customers? I don't think it's available
Hi there...Check your QBO subscription. Projects are only available in QBO Plus and beyond.
Hello Nick! Quick question on the Profit box within Projects. Is there a way to add a line item under the Profit box? For example, if you made $37,952.94 and you're splitting the profit with a partner, how would you record that? And if you're paying yourself back, let's just say the closing costs when you purchased it, how would you record that as well?
Hey! Awesome question! I would create 1 or 2 "Other Expenses" for "Profit distribution - Part 1". This is cool b/c it keeps your Net Operating Income in tact. Because they are "other expenses, they show up and total below the NOI line. That then gives you your "Net Profit". We discuss this strategy in great detail in our end to end course! Definitely check it out! www.incomedigs.com/reab3
I’m not finding your video on Products and Services. Would you mind linking to it in a comment or let me know what to search for?
Hi Heath! Here's the playlist on using the Products and Services feature: ruclips.net/p/PL89qBCL2vU2uG03qnF_SPUw_NX7ZtauNQ
Thank you for this question. That's exactly what I was going to ask😊
great video! Very helpful.
Thank you for watching!
Hey Nick! Is the video on products and services still available?
Hey Tim! This series discusses products/ services: ruclips.net/video/QxsbJvxEvs0/видео.html
Interesting approach. However, in order to generate an interim P & L on any date, you would have to either reclass all of the expenses to the balance sheet, or generate a revenue entry equal to the sum of all of the recorded expenses for flips that are in process as of the date of your report. Reclass at year-end with reversing entry as you propose is fairly straightforward, but having to reclass just to pull an interim P & L seems cumbersome.
Perhaps you have a different approach for generating interim financial statements?
I find it easier to reconcile the balance sheet rather than the P & L, so I prefer to accumulate all flip costs on the balance sheet and then record a COGS journal entry. We currently use Peachtree and that approach works well with jobs/phases/cost codes.
Do you have a QB setup that records flip costs to the balance sheet?
Hey! Thanks for watching and a great point! Yes! We cover the transfer to the balance sheet! Generally, most flippers (students of mine) prefer to track flip expenses to the P&L initially...and then transfer to the balance sheet at various increments. Some just do it at the end of the year....many would do it monthly. I just recorded a video on this exact topic: ruclips.net/video/qdESFYUS_u8/видео.html
However! The video is all distorted...so I need to re-record. I will say though...we go over this in great detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
Does your calculators work with Mac products? The calculator did not calculate once the information was plugged in. Thanks in advance for your assistance.
Awesome, video Nick! I have set everything up this way now but wondering if you have figured out a way to record a return against something on the products and services list? For instance if I buy tile for a bathroom and then decide to return that tile and buy a different tile instead I can return it against the Rehab expense account but when I look at my break down of where I spent my money on that project my bathroom expenses are over inflated because it is accounting for both tile purchases.
Hi There! Thanks for watching! Good question...For credit card purchases, its really easy! Create a new "Credit Card Credit". This will bring up a screen that looks exactly the same as an expense. Simply log to the appropriate product/ service.
For cash/ Bank charges its a bit more tedious. You would create a vendor credit...and then use a journal entry to "move" the vendor credit to your bank account.
How do you post Mileage to your Project on a flip house... Cost of goods sold mileage? What is the offset?
Hi! Thanks for watching! You would offset mileage with "owner's Equity". Think of the transaction this way: When the miles are incurred, you as the owner are "investing" them into the business. To capture that expense, you would record it as Equity. Its the same as if you were to use your personal bank account to purchase construction materials. You would offset w/ owner's equity as well.
This is great! One question: how do you record the tax in profit and loss? it looks like the tax is recorded as a profit instead of expenses. Thanks
Hi Helen,
The Property Tax should be recorded as "Holding Costs". This is a COGS that will be included in the overall project expenses. It is possible that you will be credited property tax expenses if you received this credit at closing. But over the course of the project, you will likely have a positive Expense for property taxes...which will be categorized as Holding Costs.
Hi Nick, tremendous video! Some great hacks to get this right the first time. I used this video to assist a home flipper client to restructure his books. In regards to the product/service categories, I added a leading zero to the category description. I think this will solve the sort order when viewing the items in the project area - I think that you had concern about the order of rehab costs showing up in the project side. Thanks!
Thank you Michael...and excellent suggestion! Thank You for watching!
@@Incomedigs which video should I watch before this so Ive done the analysis?
@@circlesquare6152 Hey! I don't have any videos specifically on analyzing flip properties. What I demonstrate here is just an example. What we are trying to do in QBO is mimic our tracking to our planning. So whatever you use to analyze flip properties, you would want to mirror those categories in your Chart of Accounts.
I just took on a flip client who is just starting and will only be flipping one house at a time. Can we just use customer and not use project? Trying to keep cost down with regards to the Quickbooks subscription and don’t want to enable projects if we don’t have to. Furthermore, can you provide a list of your products and services?
Hi Andrea....thanks for watching!
Yes! You can certainly just use Customers. You just won't get the reporting that comes with "Projects".
You can download the Products/ Services list directly from our website: www.incomedigs.com/
Great Video. How do you categorize Down Payments? Would it be part of buying costs? It comes out checking account when you wire so I am confused how we would show both, an increase in buying cost and a deduction from bank account.
Hey Mike...thanks for watching.
Your down payment will be allocated toward an "Other asset Account". something like "Purchase Deposits". After submitting the deposit...before purchasing the property, this account will have a positive balance. The money is still yours...you just don't have control over it.
When you close on the purchase of the property, you will credit this "Other Asset" account to bring it to 0. Those funds will then be deducted from the total $ needed to close. We discuss this in great detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
Thanks so much for posting this. So using this, you're putting the purchase directly into cost of goods sold so the balance sheet will have "negative equity" for the property until it is sold. Am I looking at that correctly?
Yes....at least initially. We are using COGS so that we can show a nice, neat P&L report for the project that matches our Analysis. However, we can always transfer the Purchase and other COGS over to the balance sheet to bring our books back in line. We can do all of this without impacting our profitability report on the Projects tab. Its a "best of both worlds" scenario.
Can you explain how to bring the balance sheet back in line at year end?
@@crystaldavidson2795 You would make a relatively simple journal entry:
Debit Fixed Assets - Potentially separate accounts for Building, Closing Costs, Rehab Costs
Credit the COGS categories that you recorded transactions on throughout the year. You would have a line for every COGS category that has a non-zero balance.
Thanks for the info.. Would you mind checking if those free spreadsheets like COA and Analyzers are still working? It seems the link is broken.
Great stuff! Ty!!!
Thank You! Definitely check out our end to end course...Real Estate Accounting Bootcamp! www.incomedigs.com/reab2
I do have to agree with all the comments below, I just wanted to first say thank you for the knowledge that you provide here on your channel and in a way that I can actually understand!!!!
I do have one question for you. My husband and I have just purchased our first rehab but our private lender just paid cash for it directly to the bank and the amount never touched my bank account. However the home is in my husbands and I's name. I am totally clueless on how to record this into QuickBooks and to what accounts that might look like.
Thanks for the feedback and thanks for watching!
Good question! On the transaction, you would simply replace any "cash due at closing"...which would be a credit with: "Hard Money Loan". The cash never touched your bank account...but the lender has definitely lended you the funds.
Purchase Price - XXX (Debit)
Closing Costs - XXX (Debit)
Hard Money Loan - XXX (Credit)
Great content! Thank you so much for sharing all the details! I'm watching a bunch of videos and as you mentioned everyone does it a little differently. What's the reasoning behind categorizing items as "cost of goods sold" instead of "other current assets" or vice-versa?
Somehow I missed this! Sorry Michael! The reason to use COGS would be to get a P&L for your flip that closely matches your analysis. When you are planning out a flip, you are likely looking at SALE PRICE - PURCHASE PRICE - PURCHASE COSTS - HOLDINGS COSTS - REHAB COSTS - SELLING COSTS = PROFIT
Using COGS is a way to replicating that same "Income Statement" approach.
@@Incomedigs coming back to this as I'm seeing several other RUclips videos putting under an asset account. Shouldn't this be an asset though? is this how you really do all your flips by putting them all under COGS. I'm also reading lots of comments where nothing should hit the P&L, until the house sells and then move everything to P&L.
@@xdbooboo1 Hi There! Thanks for watching! The first thing to emphasize is that there is no "one size fits all" when it comes to using QBO. Even if your CPA wants to make it seem like there is only "one right way". QBO is a tool, first and foremost, to help you run your business. To that end, I would encourage you to use whichever strategy works best for your businesses. When I work with Flippers, I find that most of these investors are interested in seeing a P&L throughout their project. With this in mind, we will typically use the COGS method out of the gate. You can certainly adjust the approach a bit to meet your needs.
One thing to remember: You will not get much use out of the "Projects" portal unless you are categorizing your expenses as either COGS or Expenses. Fixed/ Current Assets will not appear in the projects portal.
We discuss many various strategies in our end to end course, Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
so is there a video that links to how this gets added to the overall business balance sheets?
Yes! In this video: ruclips.net/video/LYxIFyO3x70/видео.html I demonstrate how to "move" expenses from the P&L to the balance sheet.
I know this is about 1.5 years old, but for Quickbooks Simple Start, is this still a good tutorial? It does not have the projects feature unfortunately, which seems like a big part of this tutorial. Thanks in advance.
Hi Christopher....correct, you would not have the projects features. However, you could still use "customer" for all the transactions. You wouldn't have the "Projects" portal like I display here...but the functionality would be the same.
Hi Nick, What if I manage just the flip for the investor? How should my chart of accounts be set up?
Hi! Thanks for watching. If you are managing the flip, you'll be acting like a General Contractor. With that in mind, you would likely have COGS accounts for: Materials, Labor, Subcontractors. Your Products and Services would all map there accordingly. You would not log the purchase, buying costs, holding costs. You would also have Revenue accounts to indicate the Income from your clients. This would have accounts like: GC Services, Billable Expenses Income, etc.
I would encourage you to watch this video: ruclips.net/video/42TQOGxcgO4/видео.html
It is more geared toward working for third parties (not your own properties)
Hi Nick, I love your video and sheet. Quick question about the labels in the Loan Details section; why do you call the two posts Projected Total Income and Projected Annualized Return? It looks to me like it's the Projected Total Debt Service and Projected Annualized Interest.
Hey Andreas...good question! The labels are as such in the analysis because its intended to be presented to a lender. The idea is that we analyze the property and provide the summary to a lender...clearly indicating the projected income/ return they can expect.
@@Incomedigs That makes total sense. Thank you, Nick.
Super appreciative of this information!! Thanks for posting this. I was wondering if you were rehabbing your primary residence to sell after 6 years of ownership, can you apply this same strategy and skip the purchase price or do you recommend digging up the settlement statement and starting from the purchase of the property? Thanks again and keep up the amazing content!
Hi! Thanks for watching! I don't think it would hurt to have SOMETHING in QBO for the purchase. Even if you can't find the settlement statement, just getting the purchase price would b beneficial to seeing the project as a whole.
@@Incomedigs Thanks for the reply! Can you give an example of what that journal entry could look like in this case being that the transaction is so old and the rehab is starting next week? should I just include purchase price? Anything helps thanks again!
@@boynumber6 Yes!
Date: Take a guess at the purchase date. Does not have to be perfect....at least try to get the year correct
Flip - Purchase Price: XXXX - Debit
Opening Balance Equity: XXXX - Credit
I put my cost of material to the cost of goods sold. Is that ok? Also, should I expense the home purchase or put it to fixed assets?
Yes! Cost of materials as cost of good sold is perfect! Check out this more recent video where I discuss Flips on your balance sheet vs P&L: studio.ruclips.net/user/videoaRL1MDYFMZ4/edit
You can put the purchase price on your P&L or your balance sheet initially...If you still own the property at year end, you'll want the flip purchase to show up on your Balance sheet for taxes.
Also check out our end to end course! www.incomedigs.com/reab2
Is there a video to all the products/services you created?
Yes! The latest video is here: ruclips.net/video/7tKS4vUH3tM/видео.html There is also a link to download the list of products/ services.
Great tips!
Is the projects feature available when using the QBO Essentials subscription?
Hi There! Unfortunately, No. The Projects feature is available on QBO Plus and above.
What would be the flaw of using "customers" as the name of the seller you purchased the property from (especially since you may buy several from the same seller) and adding the property address for the "projects" to keep track of everything? Seems like it might make things cleaner on the books and now you're able to keep track of both? What is the flaw in this logic, if any?
Hi Oscar...thanks for watching!
Yes...that strategy would work. Keep in mind that when you create a P&L with Customers as the columns...QBO will automatically display the parent customer as well...in this case the seller. Might be a good thing...might be a bad thing. But generally speaking...yes, you can certainly add projects as sub-customers of the Seller.
I have QBO Online, not the PLUS version. It seems only PLUS version has projects. Is there other ways to get around the "Project" part and use some alternative method?
Hi Shaila...thanks for watching! Yes, you can simply use "customer" to manage your flips. You won't get the fancy "projects portal", but you can still filter your P&L by Customer to see profitability by project.
when you set up your journal entry, can you just add your closing costs as one entity vs each individual fee?
Thank You for this video. I am confused though - Are the bank feeds pretty much useless with this method? I realized I can't categorize anything under their appropriate product or service. Is it possible to do this without manually entering each transaction?
Hi There! You touch on one of my biggest pet peeves w/ QBO! You are correct. From the banking feed, you cannot use Products/ Services. However, I would not say the bank feed is useless.
1. Remember that it is only construction transactions for which you would use the Products/ Services. Any other transactions would still be categorized via the bank Feed
2. I recommend using the bank feed as a "double check" mechanism.. As the expenses come in, forward receipts to a VA/ bookkeeper. Have the Boookkeper add those transactions before they hit the bank feed via an "Expense" transaction (which allows Products & Services). Then, as the transaction hits the bank feed, QBO will recommend a match to the existing transaction. That suggestion will serve as validation that the expense was entered correctly.
It's not ideal...but I try to look at it as a way for me to improve my receipt acceptance process.
Hey! Curious if in the past two years, anything has changed in QBO regarding this? I just watched this full video and it has been so helpful. I just connected and imported all our bank feeds from our recent flip and would love to save time if possible, instead of manually adding all the expenses and doing the "match" feature. Curious if you've found a work around. Thanks for your video and advice!@@Incomedigs
@@klk1993 thanks for watching! Unfortunately....No. We still have to add these transactions manually! I'm so glad you found the video useful. We discuss some workarounds and other best practices in our end to end course: www.incomedigs.com/reab2
Just re-watched because it's so helpful! What if I received a $50K rehab loan for rental (not flip), I categorize it under 'Other Current Liability', then when I re-pay it do I categorize the re-payment as the same thing?
Hey Chris...Yes! When you first categorize the incoming loan, the balance will appear as a liability on your balance sheet. You may make interest payments on this loan during the rehab. If so, these interest payments would be categorized as expenses (or COGS). They would not reduce the principal of the loan. When you prepay, you categorize as the same liability account...which will bring the balance down to 0.
Hey Nick, Can I create just one customer for each category of projects (FLIPS,WHOLES SALES,RENTALS,CLIENTS) and Put all projects related to that category under the same customer?
Hi there...yes, you could do that. In this case, your category would be the "Parent" w/ all specific projects falling underneath the type. That is just fine.
When you invest in a property with a partner with the flip, what gets distributed. The cash back, net profit or both?
Hi Kara...thanks for watching! This depends on your partnership agreement...but in general terms: Net Profit. Your Cash back is not necessarily your profit. The cash back takes into consideration financing on the property. Also, if you paid cash for renovations, the cash you receive back would be more than your profit. In almost every case the profit would be the determining factor on what to split.
Thank you! this is very helpful. Is there any way to incorporate the budgeted amount in each category (plumbing, electric, etc) to help track whether you are on target? or does that always have to be on a separate spreadsheet?
Hi Evelyn, unfortunately, QBO does not have a great "project by project" budgeting feature. You would likely need a separate spreadsheet. There are supplemental project mgmt tools that integrate w/ QBO...incorporating a "budget vs. actual" functionality. Specifically, Buildertrend will do this.
This video demonstrates a really quick, repeatable approach to exporting to excel or google sheets: ruclips.net/video/sNal44_yIEI/видео.html
Minor question, but I noticed you have the "use for billable expenses" checked when you are in your chart of "accounts > new" pop-up box. Mine doesn't have that option. Do you know how to activate that? Great video !
Hi Heath! Thanks for the feedback! This feature should be available on QBO Plus and beyond....and can be turned on in your Settings. Under your settings, in "Expenses" there should be an option to "Track Billable Expenses to Customers". If that is turned on, you should have the option when creating new COA accounts.
@@Incomedigs thanks for your response, I know you're busy.
This was so helpful, thank you so much for sharing! When I do a journal entry that includes the purchase price, how would I categorize a construction holdback in that journal entry? It's not buying cost and it's not really a holding cost either.
Hi Jody! Thanks for watching...and great question!
The Construction holdback is typically tied to a Loan. So, when you purchase the property, you will almost certainly Credit a Liability account (E.g. Hard Money Loan). With a standard loan, you would credit your Liability account and Debit the checking account that receives the cash. However, with a construction loan, you don't receive the cash...at least not yet!
So, I suggest you setup an "Other Asset" account to house the Construction Holdback. The money is yours...you just can't touch it yet. Once your lender releases a draw, you would Credit your Other Asset Account and Debit your checking account. Make sense?
We discuss this in great detail in our end to end course: incomedigs.com/reab
I just realized that the sale of a property should zero out the purchase accounts - understood. However, the first BK didn't do this. I need to do journal entries to do this after the fact. In one instance, a construction escrow account made interest before it was disbursed - how do I balance this.
Hey Marlaine,
Thanks for watching! Was the interest disbursed to the customer? If so, the disbursement would likely be split into at least 2 lines: 1 Bank account and 2 interest income.
If you are dealing with a lot of old transactions., it might make sense just to do a "cleaning" journal entry to 0 out any accounts associated with closed/ sold accounts. You can then offset this transaction with an equity account (e.g. open balance equity)
Can you clarify why it is better to classify expenses under "Item Details: Product/Service" and not under "Category details: Category"? In either section, I am able to identify my "Customer/Project" (which are the various flip jobs I am tracking)? Thanks!
Hi! Absolutely! The "Items Table" provides an added level of detail...an additional dimension to our reporting. We can have a detailed list of categories/ cost codes/ products/ services...that all map to a category. This allows us to track actuals at the same level of detail that we estimate. It also helps to keep our COA clean.
For example: Rough Electric, Rough Plumbing, Cabinetry, etc....these categories are too specific for the P&L. We can set these up as "Products and Services" (items)...and map them to 1-2 accounts on the P&L. Our P&L will stay neat and concise...and we can drill down into these expenses to see the details by cost code. Its the best of both worlds!
We discuss this strategy in detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
@@Incomedigs Great. Thank you for your quick response. As a follow-up, do you only use Products/Services (Items Table) for Rehab expenses? Do you also use Products/Services for things like Buying Costs, Holding Costs, Selling Costs & Debt Service? Why or why not? Thanks!
@@macclelland Good question....and yes! We typically just use Products/ Services for Rehab expenses. The reason is that we can benefit from the additional detail that products/ services provide. We have 1-2 main categories that show up on our P&L...but when we drill down we get to see some really useful detail (rough electric, rough plumbing etc). With the other cost categories, there is not as much of a benefit. Closing costs for example: Do we care how much went to title charges vs appraisals vs lawyers?....Maybe...but probably not. Even if we did, the list of detailed categories is small enough that we could likely get away with Category->Sub Category on the P&L.
We discuss this in great detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
Did this video change? What happened to the part where you transferred COGS to Balance Sheet?
Hey Brandon...the video did not change. Maybe you are thinking of this similar video: ruclips.net/video/LYxIFyO3x70/видео.html
Hi Matt, thanks for the video. It was exactly what I was looking for in order to figure out how to organize our flips. Quick question.... Since the IRS treats "flippers" just like "dealers", how do I match/input my expenses from bank feed to the procect, so everything shows on my P&L the year I actuall sell the property? My accountant says that I can claim the deductions the year I sell, instead of claim them the year before and then be stuck with the huge profit the year I sell (if that makes sense). TIA
Hi! Thanks for watching! What you’ll do is “transfer” all your COGS to your balance sheet at the end of the year. Then, the next year, when you sell the property, you’ll move everything back to a nice neat P&L for the whole project. We cover this strategy in great detail in our end to end course, Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
@@Incomedigs that makes sense! Thank you !
Also, your boot camp is amazing! I just purchased it yesterday and I’m on module 1.
@@paulinajasiurkowska4522 Excellent! So glad to have you in the course! I'll see you on the next live Q&A!
This is a GAME CHANGER! Is it possible to import the list of products/services you have into QBO?
Hey Matt...thanks for watching! Yes! You can download on our page: www.incomedigs.com/
its the excel "Products & Services" download
@@Incomedigs Sweet! How do you classify the transaction of the funds being deposited that I receive from the lawyer after the sale? Does it get classified to the project?
@@mattsmith104 Just depends on what makes up the funds. If they are the sales proceeds, they would have been accounted for in the journal entry of the sale. "Net Cash at Closing" would be a Debit to your checking account. If you don't receive them on the day of closing...not a big deal. I would keep it within the single journal entry. Then, as the funds hit your bank account, you can "match" the bank transaction to the journal entry.
If the check from your lawyer is a bit different....e.g. Tax credits that weren't accounted for on the closing statement....you would just categorize those separately as they come in. They would get classified to the project under the COGS that they are related to. If you are receiving funds, this is the equivalent of getting a "refund"....it acts as a "Negative expense"
Great video! Thank you! Do you have Chart of accts template for real estate ?
Hi There! Yes! You can download the COA here: www.incomedigs.com/chart-of-accounts
@@Incomedigs Thank you so much! Your content is truly amazing!
@@Av-yf6nn Thanks for watching! As a reminder, we have our end to end course available that covers everything related to RE Accounting! www.incomedigs.com/reab2
excellent and very professional explanation !!! Thank you so much .
Thank You Rebeca! Please check out our end to end course: www.incomedigs.com/reab
Hi Nick! Great Video! Quick questions/clarification. If we don't sell the property at end of year, do we put those expenses under inventory and it'll be on balance sheet? & then create another journal entry to transfer the inventory to COGS accounts once the flipped property is sold?
Yes! Exactly. You could actually "move" from Balance sheet to COGS on 1/1/XXX (of the next year) and go back to tracking everything on the P&L. Moving to Inventory for 12/31/XXX (past year) checks the box for taxes. Many flippers like to consistently track everything on the P&L. For that reason, this quick "back and forth" is a good way to accomplish multiple goals.
That makes sense! Thank you @@Incomedigs
another question, Sorry. Do we move the basis of the property to COGS when it sells? Or leave it? @@Incomedigs
@@SydetraGordon-q4m Up to you! If you move it to COGS...your "Revenue" will equal your Sales Price. If it stays on the balance sheet, your Revenue equals Sales Price - Basis. In the end, the net profit will be the same.
just seeing this, sorry! I would prefer to move it to COGS.. just not sure what kind of account I would move it to I actually moved it to Purchase Price COGS account. & revenue will be the sales price property sold after reno right?
In your course, do you go over completing taxes from flipping homes/or do any videos related?@@Incomedigs
Does QB have to be the online version or can it be the desk top version in order to do this?
Hi Danika! While I'm not an expert in QB Desktop, you should be able to get the same setup. You will use "Items" instead of Products and Services. You will be able to differentiate properties through Classes as well.
Would you recommend using QBO for AirBnB Host? If yes, have you done any accounting work for AirBnB host using QBO plus?
Hi There...yes! QBO works great for AirBnB. I have several students in Real Estate Accounting Bootcamp who have Short Term rentals as well as Long term...I haven't done any specific coaching..but many of the concepts of long-term rentals apply: www.incomedigs.com/reab
What if we dont have the Project feature. Is there still a way to do this? Im a full time flipper, and quick books newbie
Hi Sergio...thanks for watching! If you don't have the Projects feature, you can still set this up with the "Customer" field. Simply record all your projects as "Customer". You will not have the slick "Projects" portal....but you should still be able to draw up all the relevant reports.
If you are new to QBO, I highly suggest checking out our end to end course, Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
Fantastic, informative, and very useful. Thanks! Question: In Journal Entry, I'm receiving an error message asking to balance debits and credits. Is there a general workaround to this, must I always balance in Journal? Don't want to tie the credit to a specific checking account just yet. Thanks!
Hey there...thanks for watching! Yes...you must always match Debits to Credits in a journal entry. This is a fundamental element of any accounting software. The software needs to answer the question: "where did the money come from?" and "where did the money go". If QBO allowed you to have unmatching Debits/ Credits, you would have a mismatched balance sheet.
If the funds for a credit card payment came from a personal account...you could simply use "Owner Equity" to account for "Where did the money come from".
@@Incomedigs Thanks! I appreciate all the information you've provided.
After you know your profit is there some way of calculating how much taxes to put aside come income tax time?
Hi! Thanks for watching! I would do any tax prep calculation outside of QBO. QBO will tell you the profit to put into that calculation. You would need to consider other factors: Other income sources, deductions, etc. QBO will deliver key data to help you with that calculation.
Fabulously organized!
Thanks for watching! Be sure to check out our end to end Real Estate Accounting course: www.incomedigs.com/reab
If you purchase a property for a flip ,you can use it as cost of good sold. If you use it as a rental property then what would you label it as?
Hi Jesse...thanks for watching. Rental properties should be logged against Fixed Assets. You would have subcategories for 1. Land 2. Building 3. Closing Costs 4. Capital Improvements
@@Incomedigs Thanks for the info. What If I do not know which way im going with the property either flip or rental . What should I classify it as?
@@jessejimenez5232 good question! I suggest sticking with your initial assumption or whatever route you usually take. You can always move the balances later...if/ when you decide to change your strategy.
What if you have the essentials verisons so you can't use the projects tab?
Hi Bryce,
If you have essentials, you would likely need to use "Customers" to track expenses specific to a property. This may only be done using journal entries...as QBO has recently removed the ability to tag customers on regular expenses.
@@Incomedigs thanks for the response 👍
We capitalize our properties and renovation costs. as we accrue costs, how can we have it show up on the project?
Hi There! Thanks for watching! The only way to have costs show up on the project is to categorize to Expenses or COGS. Of course this will go on your P&L...not your balance sheet. However, you can track to COGS and then transfer balances over to your balance sheet. We go into this in great detail in our end to end course: Real Estate Accounting Bootcamp: www.incomedigs.com/reab2
How does this affect the Balance Sheet report doing it this way? Shouldn't properties should be on the balance sheet as Asset? If I do it as an Income account, and I need to run a Balance Sheet Report, won't it be wrong? I see another reply where you suggest creating an end-of-year entry or something... but what if I need to run a report before year end?
Hi C.S....thanks for watching!
Whether your properties hit the P&L or the Balance Sheet is a choice...at least throughout the year as you are operating your business. Many FLIP investors prefer to have the all costs associated with the property, including the purchase, listed in the P&L. This leads to a P&L that matches the analysis. However, you can certainly log your purchase and even renovations to your balance sheet. In theory, this is "More accurate"...but it all comes down to the reporting you want to see to help you run your business.
At the end of a tax year, you would almost certainly transfer any In-Progress flips to your balance sheet. You would likely wait to take any deductions on the project until it is complete.
Remember: QBO is software to help you run your business. It just so happens that it can help with taxes too. You can pick and choose strategies that make the best sense for the reporting you need.
If you’re ever in Minneapolis hit me up and I’ll buy ya dinner. Thanks for the amazing content man!!!
Thanks Matt! I will absolutely take you up on that! Let me know if you get stuck with anything else...also please check out our end to end course! www.incomedigs.com/reab2
Thank you for this video. I have a small house flipping business, I and used this video to help me to categorize my expenses for each house by using customers in QuickBooks Desktop Pro. Before I just used one inventory account for each house, which obviously didn't provide much detailed reporting. I'm having an issue, though, with the Profit and Loss Report showing columns by Customer:Job. This report works perfectly for the items assigned to a customer, but doesn't show most of my general transactions that aren't assigned to a customer (eg computers, tools, office supplies). It shows a random few of those transactions under the "no name" column, but most are entirely excluded from the report. So this report isn't as helpful because the overall net income is wrong, doesn't agree to the net income on the regular profit/loss report without columns. Just thought I'd check to see if you've run into this issue before. I called QuickBooks help and they didn't know what to do. Thanks!
Hey Todd, Thanks for reaching out!
Your Profit and Loss should have a column at the very far right that indicates "Not Specified". If you are not seeing the totals that you are expecting, it is likely that you have some sort of filter that is reducing your results.
Here is my suggestion....start from scratch with the report.
Go to the standard reports, select profit and loss. By default, QBO will include everything with no columns...just the total. Make sure your time frame is correct. Then, click "Display Columns as" and indicate "Customer".
If you follow those steps, QBO should not be limiting your results in any way. You haven't set any filters other than the date. That is all I can think of. I haven't encountered this problem in my own books or in working with clients. Let me know how that goes. Thanks...Nick.
@@Incomedigs Thanks for the reply. I do have a column on the far right, it's called "No name." A few random transactions are showing there, but the vast majority are not. No other filters on besides "All income and expense accounts." No worries. It's frustrating that it doesn't work, but I can make do. The report without columns works fine, I can see the totals of those general expenses there. Thank you
How do you properly record deposits from draws. Let say my lender send 20K for first draw how would i properly allocate that ?
Hi There...thanks for watching! When you first establish the loan, you will set up an "Other Asset" for the construction/ loan escrow. The cash sits there until you receive draws. Once you receive a draw, create a journal entry where you debit your checking account and Credit your construction/ Loan escrow.
We discuss this strategy in great detail in our end to end course: www.incomedigs.com/reab2
What is the account type and detail type for the hard money loan you add to the journal? Thanks
Hey Adam...thanks for watching! For a Hard Money Loan, I would track it as a Liability...typically "Current" if I expect to pay it back within ~1 year. For detail type, I would just use something like "Notes Payable"
How do you account properly for a flip that overlaps in to two fiscal years? Why wouldn't you set up the house as an inventory item and then add "parts" to the item and then run it through as finished goods at time of sale?
Glenn brings up a good point (which we discussed over the phone last week!) You can certainly use inventory for your flips. I personally like to utilize Revenue and COGS...but using Inventory out of the gate is great option!
How would I record the draws for the Rehab, it’s not income, would it reduce the other rehab expenses on the books?
Hi Lina...thanks for the question! Draws will not impact the Profit and Loss at all. They are not income...they are not expenses. They are simply "balance sheet transactions".
Think of your Draws as a transfer from one bank account to another. When your construction loan is funded, a % of the loan is stored in an escrow account to be paid out in draws. At the time of funding the loan, you should put this amount in an "Other current Asset" account. Think of this account as a bank account that you own, but you can't control. It's your money...you took a loan out for that amt. The bank just wants to make sure you are building in order to release it.
When you get a draw, you would simply debit your bank account and credit the draw account.
We talk about this in great detail in the community and live q&a's included with our end to end course...real estate accounting bootcamp: www.incomedigs.com/reab
My boss needs the property to show as an asset on his balance sheet. If I show it here as a liability it isn't an asset. How do I show as an asset instead?
Hi Marlaine! Thanks for watching! In this example, the cost of the property is actually shown as an Expense/ COGS. This technique would only be used for "quick flips". Flips that are not in your books for long. For anything that you want to show on your balance sheet...you would have accounts setup to differentiate these assets. Simply create the following asset accounts:
1. Land
2. Purchase Price
3. Closing Costs
4. Capital Improvements.
All would be assets! You would debit these asset s when the property is purchased.
Is that first spreadsheet for sale anywhere?
You can download the estimator for free! Here: www.incomedigs.com/rehab-estimator
The rehab analyzer on your site for download does not seem to be working, signed up but that never came through 😕
Hi Chris...sorry about that...and thanks for letting me know!
Please email me directly and I'll send you a copy: nick@incomedigs.com
Very helpful, Thank you Nick! When you create an expense with products and services that would go towards the "Flips - Rehab Costs" account, would you then "exclude" those transactions in your bank feed?
Also, when creating a journal entry with a line that debits interest paid to lender, how can we also assign this transaction to a vendor and not only a project? Goal is to be able to track the interest amount paid to the private lender by the end of the year.
Hi Andrew...thanks for watching....Two great questions!
1. No need to "exclude". Instead, use the "Match" function. This gives us the best of both worlds. The transaction is "double checked" by the system suggesting a match on the bank feed. Matching will not duplicate the entry...just assign the existing transaction to a downloaded bank transaction.
2. Unfortunately, on a journal entry, we only have 1 shot at the "Name" field. QBO Does not give us a spot for entering both the customer and the vendor. This is super annoying...and really one of the only limitations to journal entries (The other being lack of products/ services). You would need a supplemental transaction as a work around. 1 way to do it would be to create a separate journal on your closing date where you Credit interest with the name blank and Debit interest with name populated to the vendor. This specific transaction will be Net 0 to your books...and will not influence project reporting. However, the interest paid to the vendor will be tracked for your year-end 1099. Of course another "solution' would be to use class instead of customer....but that is a major change. I would prefer the workaround before completely changing your setup.
@@Incomedigs Thanks for responding man! This is super helpful.
1. In some cases I would be dividing a payment that I did to several products/services when I manually add the expense. That's why I thought about excluding because a match wouldn't be possible with the amounts being different. (i.e. When I pay the GC a draw of $1,000 for Lighting Fixtures and Landscaping, it comes to the bank feed as a large transfer while I manually add the expense as $500 in "lighting" and $500 in "landscaping".) Unless there's a way to use the split feature and put a larger purchase into several categories? or would you just exclude in such cases?
2. That was exactly my thought! I'll do that from now on. Thank you so much.
@@andrewsarrouf7735 This is the exact scenario. Within an "Expense" or a "Check", you have the ability to break the expense down into 1 or more "items" (products/ services). All of those will add up to the total withdrawal from your bank. That total is all that matters on the match. As long as the total of the manually added expense = the total transaction amt coming through the bank...you can use the "Match" function.
Hey some quick questions - how do you track the assets if they have not been sold in that particular year? and how do you track the depreciation on it? And what about if the asset did not sell in that particular year? Do you still claim the Improvement Expense in that particular year?
Hi Saurabh...thanks for your question!
If the asset was purchased/ sold in the same year, there is no reason to track depreciation. If the asset did not sell within the year it was purchased, must CPAs would recommend you hold off on deducting those Flip-related expenses until the following year. The expenses would go on your balance sheet as an asset. Again, no reason to depreciate as you will be selling the property quickly.
That is generally how its done.
We discuss this and many other topics in our end to end training: incomedigs.com/reab
@@Incomedigs Got my answer, Thanks you very much. :)
@@Incomedigs Can you explain how to postpone deducting the rehab expenses until the following year since they will be on the Cash Basis P&L? My client's business began in 2020; are rehab companies topically accrual instead of cash basis?
@@anitagreenwalt5704 Sure!
The technique is to create a single journal entry at year end to move your rehab expenses from your P&L to your balance sheet. You'll need an asset account: E.g. "Flips in Progress".
Create a journal entry as of the last day of the year (12/31/2020) wherein you Debit the new asset account and credit your Expenses account(s). This will take the value spent on your rehab out of the P&L and into your Assets.
@@Incomedigs this is exactly what I was looking for. Account Type: Fixed Assets | Detail Type: which one I should use?
Outstanding tutorial. Thank you so much for that. Question, I am also involved in the Tract/spec homebuilding business. Would you say I can use the same account system for those sectors or should I have a different approach?
Absolutely! This would work pretty much the same way!
I just brought quickbooks desktop pro 2020 . i was looking to set up my first flip house and my quickbooks doesn't match with yours. pulling my hair out! i'm new to quickbooks
I think I was able to figure out how to do it in the desktop version. Basically you need to set up your Chart of Accounts first and then create customer with a Job. Under the customer-Job you will enter the property address and track all costs from there. To record the purchase you use a Journal Entry and pick the Job name (Address). When he says Products & Services those are just recording the expenses. When you sell the house you will create another J.E. and record using his method. You can then go to the reports and run a P&L by Job. For me that worked. Good Luck!
can you do the same video with desktop pro 2020 ?
Super helpful. Thank you!!
Thanks for watching!~
Amazing content. Thank you so much!
Your videos are great. I'm switching from using Categories to Products and Services so that it's compatible with Builder Trend. When uploading scanned receipts, do you know if it's possible to attach the receipt directly to a Product & Service from the from the initial receipt scan page? I can attach it to my expense category but then have to go back into the transaction and change it to the Product and Service, thus doubling my efforts. Thanks in advance!
Hey Daniel..thanks for watching!
Unfortunately, you've discovered one of my all time pet peeves with QBO: The answer is No. From both the "Receipts" page and the "Banking" page, you are only able to capture the "Category" of the transaction. This has been the case for some time...but I am hopeful a change will come soon.
I've curtailed the extra effort with a well-defined process...aided by my VA.
Here is what we do:
- Our employees upload all receipts to a designated Slack channel...indicating the job/ expense code for the expense (Slack is just one option...you could use Drive, QBO Receipts, Dropbox, etc)
- My VA will proactively add these transactions as "expenses" in QBO
- As the transaction hits the Credit Card/ Bank Account Fee (Typically 1-2 days later), QBO will suggest a "Match" as the transaction already exists in the system. My VA clicks "Match", and we are all set.
This system serves a bit as a "Double Check"....if transactions appear in the feed that do not have a "Match" suggestion...then they were either entered incorrectly or an expense slipped through the cracks without a receipt. My VA will then investigate...contacting the employee who made the transaction to provide the receipt.
Certainly some double work involved. However, we decided to take the negative that QBO gave us (no quick Product/ Service allocation), and turn it into a positive "reconciling" process through which we can maintain close to 100% receipt compliance.
Let me know what you think...Of course I will be ready with a new video if/ when QBO makes the change!
@@Incomedigs Wow thank you for the thorough answer. I haven't linked my bank accounts yet but it looks like it'd be worth doing. The only other thing I can think of - do you know if there's a way to sync Builder Trend cost codes with Categories rather than P&S? I actually prefer using Categories myself but am just switching to P&S to be able to link with BT.
Also, when you are matching the bank transaction to each expense, how do you assign it to the correct P&S from there? Or do you have to go into the Expense, delete the Category, and add the P&S? Thanks!
@@daniellandman2327 Hi! I don't believe that is possible. BT is only mapped to Products/ Services. You could simplify your P&S list and map each P&S to its own, unique category
@@daniellandman2327 We actually create the expenses before matching the bank transaction. Whether the transaction has "hit" the bank or not...we'll take the receipt, and add a new expense...ignoring category and only using product/ service. We then "match" it to the bank transaction when it comes in.
If you were to "accept" the bank transaction...then yes, you would need to delete the category line and fill in the P&S line.
Its a shame that P&S use for expenses is not as mainstream for QBO. I feel they would certainly be feeling the pressure to make it part of the receipt/ bank feed flow.
I added an additional category - 7. Flips - Payroll Expenses. When I go to the project overview that category does not show up in the middle column under costs or expense. How do I get payroll to be included in the overall project report to reflect a more accurate profit at the end of the flip?
Hi Jody...thanks for watching! First question: What "Account Type" is 7. Flips - Payroll Expense categorized as? Only Cost of Goods Sold or Expenses will show up. Also, does that account have any transactions? Only non-zero values will show up. If there are no transactions for that account/ project, it will not present itself.
@@Incomedigs I checked and it is set up as an Expense > Payroll Expense and yes, the current project has other transactions, I can see the project but not the payroll expenses rolled up into it. Any guidance to get the payroll to roll up into the overall project would be greatly appreciated!
@@jodypupecki9423 the payroll expenses for the project are likely tied to time entries. Do you have time entries for the project? I would potentially need to see your books and poke around a bit.
@@Incomedigs they are not connected to time entries as far as I know. If you're willing, let's chat offline. My email is admin@marksmuellercpa.com. Thanks!
How do I set this up in Quickbooks Premier Plus Desktop?
Unfortunately I only demo with Quickbooks Online. That being said, I can answer questions related to your Desktop setup. Is there something specific you’re struggling with?
Did you ever figure out why the order wouldn't correct itself under COGS?
Hi Aaron...thanks for watching!
No! I have no clue why that happened...and I haven't been able to replicate the problem since. Did this happy to you?
How can I get a copy of your excel spreadsheet
Hey! you can download the spreadsheet here: www.incomedigs.com/rehab-estimator
Which category would the loan payment fall into?
Hi Lina...thanks for watching!
Your loan payment could potentially fall into more than 1 category. If you are simply paying an interest only payment for a hard money loan, you would categorize this as "Interest" (COGS account). IF you are paying interest and principal, you would split your transaction accordingly: A portion to interest, and a portion directly to your Liability account which holds the loan.
Can you share the excel template? TIA
Yes! Here is the template: www.incomedigs.com/rehab-estimator
are holdings costs capitalizable? let say
They can be...I would discuss with your CPA
How possible I can have that spreadsheets?
Hi there! The spreadsheet is available at incomedigs.com (See "Rehab Analyzer")