Quickbooks Online for Real Estate Investors: Translate an HUD to QBO

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The most common question regarding REI accounting: “How to translate an HUD?” Here it is! A step by step guide to recording the purchase of property!

[@Incomedigs]

Check out my End-to-End Quickbooks Training. www.incomedigs.com/reab ($50 off w/ code KZbin50)

[@TobyMiller1970]

What do you do when the Closing Disclosure does not list the value of the land? The County Tax office website shows what the land value was last year.

[@Incomedigs]

Hey Toby...thanks for watching! In most cases, the closing WILL NOT include the value of the land. You'll need to use some sort of logic to determine this value. While you should confirm with your CPA...here is what I do: Find the most recent assessment of the property. This assessment should have a land value and building value. Don't pay attention to the total value...but instead pay attention to the proportions. E.g....Assume you buy a property for $200K The most recent assessment shows a land value of 20K and a building value of 80K. On your entry...I would be land value = 40K, building = 160K

[@TobyMiller1970]

@@Incomedigs, Once I determine the value of the parcels and 2 buildings, should I create a separate JE and how would you handle that? Thank you for responding and for your videos. Very helpful and much appreciated!

[@Incomedigs]

@@TobyMiller1970 no need for a separate entry…just go back and edit the original. You’re welcome…I absolutely love sharing my knowledge and helping (and learning from) others!

[@NickDG90]

Thanks for this great video Nick! I have a question about how you are entering your property insurance. Each year, when my homeowner's insurance gets paid out of escrow, I assign that to a prepaid expenses asset account and then use a JE to record an expense each month over the next 12 months, debiting the expense account and crediting the prepaid expenses asset account until it zeros out. When translating the HUD to QBO, if I enter a debit directly to Property Insurance (like you enter $475), then I am recording the entire expense in the year I purchase the property, not over the course of the next 12 months. Is this the correct way to do it? If so, how could I still record monthly expenses towards a prepaid expenses account?

[@Incomedigs]

Good question (We cover this in great detail in our end to end course: bit.ly/reabcourse) In this example, we assume that we owe the entire 1st year's property insurance at closing. Even with us paying the first year at closing, we may have a tax and insurance escrow account to capture a monthly payment. Our bank then pays out the insurance every month on our behalf. Your technique is close. I suggest you continue allocating the monthly amount paid into T&I escrow as "Other Asset". This will allow your escrow account to build up every month. What I would change is doing a JE every month to capture the expense. Instead, follow what the bank actually does. The bank probably pays out the property insurance 1 time per year (same with taxes). Check in with your escrow statements to capture that date. When the time comes, make one single journal entry. Every month you pay into escrow...your escrow account builds in value. Then, a few times a year (typically once for insurance and 2-3 times for taxes) make a journal entry to Debit the expense category and credit the prepaid expenses/ other assets account.

[@telaholcomb]

Thank you for all your amazing videos, Nick! What if you have one loan for multiple properties? Would you skip allocating each line item to a specific property or divy each line item across each property?

[@Incomedigs]

Hi Tela...thanks for watching! Yes...this can get a bit annoying and tedious...But you are on the right track. You would split the mortgage line from the HUD into as many lines as properties on the loan. The problem here is tracking payments. On your balance sheet the loan will show as sub-divided among your properties. This is just fine...its just hard to track when you make payments to the loan. In theory, you would also have to split up the principal/ interest payments. If its just two properties...not a huge deal. If its more...it becomes quite hectic. Here is a workaround: Create a separate account to track the loan for muliple properties: "E.g. Lots 1-5 Mortgage" . When recording a journal entry against this account...use a "genera" class...something that does not go to a specific property (or you could just pick one of your properties...you'll get the same result). Over the course of the year...track interest/ principal payments to the general loan account. Then, at the end of the year, make a journal entry to divy up the interest/ principal across the properties.

[@camillafontenot3775]

Hi Nick! Thank you for the awesome content! I was wondering what to do with the taxes recorded during a purchase in a journal entry to COGS since it now shows up on the P&L as a negative. The property is now a rental after a rehab so want to capture the profitability. I recorded in the JE the tax as a credit as an expense (COGS) but that creates a negative expense. Thank you!

[@Incomedigs]

Hi Camilla! The Property Taxes should show up as COGS...even if, for a time, they show as negative on the P&L. Over the year, as you pay taxes, this figure will go from negative to positive. While the property was a rehab, you could record those taxes as "Holding Costs". Part of the costs associated with holding and flipping the property. Again, if they are negative, that tells the truth about those costs while they were a rental. I would not worry about them being negative. If you wanted to avoid these costs all together, you could potentially log them as part of closing costs and log to your balance sheet.

[@mattsussman9664]

Thanks for all your videos. Very helpful. I have a HUD for a refinance that I am trying to record, which involves paying off the old lender and taking on a new loan. A couple questions: 1. Under Title Charges, there are attorney's fees. Would you expense or capitalize those costs? 2. As part of the refinance, the new lender paid off liens related to real estate taxes and utility charges. Would you expense or capitalize those costs? Thanks for your help.

[@Incomedigs]

Hey Matt...thanks for watching! Of course, I will always default to discussing with your CPA...but my thoughts are: 1. Just about anything related to the new loan would be capitalized as "Closing Costs". The exception would be any expenses that you would also incur during the day to day operation of the property (taxes, insurance). and 2. Anything related to the old loan would be expensed.

[@kendrkaye]

Thank you so much for sharing your expertise! I have a question about how to record a credit to the buyer. I'm cleaning up the books for someone who owns a commercial property and the original journal entry put the credit to the buyer from the closing statement as a credit to the commercial property asset account, which reduces its value. Is this the right way to record a credit to the buyer? I can't seem to find an answer to this anywhere.

[@Incomedigs]

Hi Kendra, I suggest having a sub-account under "Real Estate" for "Closing Costs". You can then amortize these costs over time...separate from the depreciation of the building. I would have the Land/Building exactly equal the purchase price. You can then put the "Closing Costs", including the buyer credit, in its own account. This may reduce the overall value of your real estate...but the separated purchase price stays in tact.

[@bottleequipment507]

on my HUD statement it says "Consideration Amount" , what is this classified as? Thank you in advance! You are the only doing these types of videos/tutorials in this niche! Much appreciated!!

[@Incomedigs]

Hey! Thanks for watching! The "Consideration Amount" typically means the total amt. being paid for the property. This would be attributed to your fixed assets (split b/w buildings and land). Sometimes this figure is the "net"...meaning any deposits/ escrow amts have been deducted.

[@LikeZoinkss]

Hello! Really appreciate all the videos you're creating for REInvestors on QBO. Regarding Property Taxes for short term flips, am I able to categorize these as a COGS item even though it's a short term investment? Thanks in advance, keep up the good work (you're helping me, a young investor running a 2yo business that's planning to scale this year!! You've given the best advice I've found in these two years!)

[@Incomedigs]

Hi Renae...thanks for watching! Yes...your "product" is is still the home you are selling. Costs directly associated with that "product" can and should be categorized as COGS!

[@gamechangerproperties4114]

Thanks for the vid. Is this the basic QBO or an upgraded version? Thanks!

[@Incomedigs]

@@gamechangerproperties4114 You should be able to follow these steps in the basic subscription packages of QBO Online.

[@mikeluu23]

I have partners that put out money for a down payment or EMD on a flip as part of their partner contributions. So I add a JE with a credit to their contribution and debit to COGS buying costs. But when I enter a JE for the HUD statement, the down payments are there too. How do I not double count these but keep HUD in balance? I am stuck on this and am hoping you have a solution for an entry like this.

[@Incomedigs]

Hi Mike! Thanks for watching. On that initial journal entry...instead of Debiting COGS buying cost, Debit an "Other Current Asset". Something like "Purchase Deposits". The funds are not considered an expense yet. The money is technically still yours. Then, when you close, you would credit that same account which should balance out the HUD.

[@czarleneansay5254]

my client had some loan to private lenders for rehab. How should I categorized the deposit? Should it be just part of a loan? or do I have to include the deposit as part of the asset? Thans

[@Incomedigs]

Czarlene...the deposit should be held in an "Other Asset" account until you close. The money is still "yours"...you just don't have control over it. When you close, you would Credit that "Other Asset" account and Debit the asset you are purchasing accordingly. We discuss all of this in the bootcamp: incomedigs.com/reab

[@LM-tz9js]

Please let me know how to record funds received from Escrow agent, funds released . I am not sure what is the credit - is it a Current Long tern assets? Thank you

[@marlainemayher4049]

If I download transactions from the bank, and put it the journal entry that the cash at closing came from that bank account, it shows on the bank register twice. How do I avoid this?

[@Incomedigs]

Hey Marlaine! Great question...and a common one! Here is what you do: When the transaction shows up from the bank....don't touch it...yet! First, make sure you have the journal entry correct. part of that journal entry would be the incoming/ outgoing transaction w/ your bank. Once you make the journal entry, go back to the bank feed. Instead of "Categorizing" this transaction, you should instead be able to "match" the transaction to the journal entry created. When you "match" a transaction it will only appear in your QBO ledger once.

[@marlainemayher4049]

@@Incomedigs thank you

[@faheemayameen]

hi.is it only a buyer side that needs to be recorded? or if you have purchases one & then selling the same what entries will be there?

[@Incomedigs]

Hi Faheema...when buying, all you need to record is the purchase side of the transaction. When you sell, you will have a completely new HUD. Here you will focus on the Selling side only. We cover this in comprehensive detail in our end to end course: www.incomedigs.com/reab