Accounting and Record Keeping
[NOTE: I get a lot of requests for my Quickbooks Chart of Accounts these days. I have now included the Chart of Accounts as part of the special goodies when you buy my Flipping and Estimating books. Click here for more information!]
I receive a lot of questions about my company’s method for accounting and recording keeping for our rehab projects. For those who have been in this business for a while, you probably have your own system that you rely on and that works well for you; for others who are just starting out, hopefully this will give a framework for thinking about these types of things…
First, I use Quickbooks for all my accounting and financial record keeping. I used Quicken for a LONG time, but finally realized that I’d be much better off porting my Quicken data over to QuickBooks; my accountant is highly appreciative of this as well.
As for how I break down my financial view of a house flip, it looks something like the following:
Purchase Costs
This group accounts for all costs incurred up until the day I own the property. This includes any earnest money deposits, inspections, appraisals, financing fees/charges, closing costs, bank credits, etc.
I like to keep this as a separate category because this group of expenses represents costs that I’ve incurred not just on the properties I flip, but also on some properties that I investigate but don’t end up purchasing. For example, if I put a property under contract, hire an inspector to do a property inspection, and then later back out of the deal, I still need to account for those inspection costs.
That said, I keep a close eye on this group of expenses (I have several reports that I run once a month in Quickbooks); because there are a lot of “sunk costs” (costs that are never recouped) in this area, I try to ensure that I do everything possible to keep expenses in this area as low as possible.
Rehab Costs
Rehab costs are all costs associated with both materials and labor during the rehab. Material costs consist of everything that gets purchased for the property and will stay with the property (materials used for staging that will be retrieved upon sale are not counted). Contractor costs include everything from the GC to the landscaper to the termite inspection to all the other sub-contractors I might hire.
In short, rehab costs are essentially anything I spend to renovate the property.
Holding Costs
Holding costs are those costs that accrue the longer I hold the property, generally monthly. This includes any mortgage or loan payments against the property, property taxes, insurance premiums, utility payments (water, electricity, gas, garbage, etc), lawn care (once the rehab is complete), etc.
Selling Costs
Selling costs are all the costs accrued in order to sell the property. This includes commissions, any closing costs I might pay on behalf of the buyer, selling closing costs, any mortgage or loan payoffs, etc.
This category also includes items required by the buyer as part of the purchase contract. For example, if the buyer requires a termite letter, that would be included as part of the selling costs. In the case where the buyer requires that a repair be performed that should have been performed during rehab, I may attribute the cost to Rehab Costs.
Lastly, any refunds or over-payments that are returned to me — such as escrowed funds or insurance over-payments — are also attributed to selling costs.
I’ve found that this system of managing and organizing expenses is very effective for the way I think about this business, and I extend it past just my financial management software. We keep four folders for each property (Purchase, Rehab, Holding, Selling), along with a “Receipts” folder; these coincide to the financial groupings that I use so it’s generally pretty easy to find and cross-reference items when I need any property information.
My bookkeeper wants me to create a chart of accounts for my fix-n-flip business. I don’t want to reinvent the wheel, but do you have a Chart of Accounts that you use for your fix ‘n flip business that you wouldn’t mind sharing? I found a good one from the National Association of Home Builders, but I wanted to see if maybe you had something better. Let me know. Thanks. -Gerard
Gerard –
Are you referring to a chart of accounts as would be used in Quickbooks? If so, I’m happy to share what I use…just shoot me an email from my contact link on the Home Page…
Please send to me as well!
I will send an email as well..
Thanks!
Thanks for the high level summary. Have never used quicken, but with Quickbooks we have to deal with capitalizing costs in WIP, converting it to COGS when sold, etc. Not overly difficult once we plow through the hundreds of tidbit information (yet to find a comprehensive walk-through – and would write one if I knew enough) available on the intuit site. That said, do you have simialr issues with decided what to expense, what to capitalize, debit and credits to move the money around from WIP to COGs, etc? Does your accountant do all this?
If you have this information to share, I would also like a sample or copy of your “Chart of Accounts” please. Thank you for all the helpful info.
Hi Cheryl,
My accountant is actually in the middle of overhauling my QuickBooks chart of accounts; once he’s done with it, I’m happy to send you the latest version.
Please send to me as well!
I will send an email as well..
Thanks!
I clicked on your link to free Flipper Software, but it’s not free.
Brad, I do the same accounting system WIP, COGS, Expenses, etc.. it is so hard to keep track of and a lot of journal entries. Last year we had over 50 properties that we flipped and year before over 60 properties with different investors. If there is a simpler way to do all of this please advise. I have will be trying the Flipper Software today to try out 30 day free guarantee trial.
Hey folks,
Not sure what the “Free Flipper Software” is, but I can promise that it’s not something I’m offering (I don’t charge for anything on my site). Perhaps you’re seeing advertisements on my site to other people’s products…if so, please keep in mind that I don’t endorse any software (and haven’t tried anyone else’s software), so buyer beware!
J Scott
What software do you recommend? I am clicking your link and nothing happens. Unless I am clicking wrong link. Can you post your website?
Thanks.
Hi Liz,
I’m not sure what link you’re clicking, but for tracking rehab costs (and all investing income/expenses), I just use QuickBooks. I highly recommend it, both because it’s helps you to see your financial statements quickly and easily at the click of a button and because it will make your accountant’s job a lot easier. If you’re flipping 50-60 properties per year, I’m not sure how you’re keeping track of everything without something like QuickBooks.
Jason,
Thanks for the overview of your accounting method! It is just the thing I am looking for. Which version of the Quickbooks are you currently using, basic, pro, premier? Do you recommend it for someone who is just starting out? Also, if possible, can you please send me a copy of your QuickBooks chart of accounts?
Another question about the CPA, interviewed a few accountants, they all claim they have real estate experience, but when I ask about whether or not one can qualify for Real Estate Professional for tax purpose, none of them can give me a straight answer, and most of them don’t even know that you can defer your deduction to future years. When asked about schedule of fees, the only thing they gave me is how much they charge to prepare a tax return for different schedules. Does this sound right to you? Or I should keep looking? These names all come ‘highly’ recommended by my local REIA attendees.
Hi Sophia,
I currently use QB Pro 2012, which is what my CPA uses/recommends. He’s actually working on revising my Chart of Accounts, and I’ll send you the revised one as soon as I have it.
As for finding a CPA, ask him/her if he owns any real estate personally. I’ve found that a CPA that owns real estate tends to have a much better handle on the tax regulations than someone who just has investors as clients. I think the question about, “What does it take to be an RE Professional?” is a reasonable one, and any good CPA that works with investors should know the answer. Also, you probably want a CPA who can not just do your taxes, but can also make recommendations throughout the year on how you should structure your business/investments to offer you the best tax advantages before it’s too late (when he’s working on your taxes). Based on that, I would keep looking…
Thank you for all of the info. I am working the book for a small company that flips houses and I would be interested in how you set up your chart of accounts. I think that I am going to have to do a total rehaul!
Hey J,
Put me on the list for the QB chart of accounts if you don’t mind. I’ve read this article over and over, trying to memorize it all 🙂
Thanks again for everything.
Hey Shane –
Happy to send my Chart of Accounts. It may be difficult to interpret, as I track multiple income streams through one company:
– Flip Property Income/Expenses
– Rental Property Income/Expenses
– Real Estate Agent Commissions/Expenses
– Staging Income/Expenses
– Consulting Income/Expenses
But, I’ll send it and you can decide if it’s worth trying to use…
Hey J Scott,
Thank you so much for this website, I’ve been on it for the past couple of months and it has been a great reource for me. I purchased my first flip about a month ago, will be applying what I’ve learned here 🙂
Can you also send me your chart of acounts when it’s available? I will be setting up quickbooks soon 🙂
Thnanks again!
I would appreciate a copy of you QB Chart of Accounts, too, J Scott. Great website.
Thanks…
Would you please send me your chart of accounts? I am going to set up a new client with similar multiple income streams as you describe. Would rather not start from scratch and it seems like you have a good handle on this piece of your business.
I would also appreciate a copy of your QB Chart of Accounts. Your website is wonderful and I really enjoy your updates.
I am also interested in receiving a copy of your chart of accounts that you use. Also, I am interpreting from one of your previous coments that you track all your short-term investments (flips) and long-term investments (rentals) under one company. Is this true? Under our structure, we are considering having long-term investments under a separate corporate entity for ease of tax preparation. Do you have any thoughts on that?
Thank you.
Hi Lisa,
I’ll send you the COA in a separate email. There is definitely some ease of tax preparation advantages to tracking flips and rental separately. I actually also filter consulting, staging and some other income through my main LLC, so those are part of the COA as well. My CPA has no issue with it, but I could certainly understand the desire to segregate income streams to different companies.
Hi Scott,
To keep it short, I am also interested in your COA for flipping homes. I am helping a new client track his expenses through spreadsheets right now, but as of the first of the year, I want to get him up and running in Quickbooks. He has rentals but also rehabs homes and sells within the year he purchases. I am still fairly new to QB myself (taking classes, tutorials)..I would be happy to pay you for the COA. I think you should anyways..There are only 2 or 3 accountants out there offering samples and they are charging, as you know, $300.
Daisy
clearvueorganizing.com
Check your email, Daisy…
Hi! Thanks for all the information about flipping. I have a new client that has been using quickbooks to record all there information (both aquiring the property and selling). They have used many different methods to record entries. I will be doing somewhat of an overhaul and need a starting point. Can you please send me your chart of accounts? I do think that would be the place to start. Also…if you have a sample JE posting a HUD statement that would be great. Thanks in advance!
Ann
Hi J, I’m playing follow the leader here….would also like to receive your COA to help set up my flipping tracking. Thanks
Wow! Lots of good information. Please send me your COA. I am just getting started and the information you are sharing is very helpful. Thanks.
Hello –
I am very interested in receiving your COA – I currently use quick books for both house flipping and rental properties, but I’m very new to it and learning as I go! Thanks in advance.
Kim
I would also like a sample or copy of your “Chart of Accounts” please. Thank you for all the helpful info.
Hi Scott,
You truly have some of the best info. in the biz, keep it going for us newbies! I too
would really appreciate a COA. I will be getting Quicken or QB for my biz.
Thanks!
Hello –
I am very interested in receiving your COA – I currently use quick books for both house flipping and rental properties, but I’m very new to it and learning as I go! Thanks in advance.
Kim
Can you please send me your chart of accounts and do you find holding the property in an certain entity like LLC versus another helpful?
J Scott-
Love the website. I’ve found it to be a tremendous resource as I begin my flipping enterprise-thankyou! If you’re not yet overwhelmed by all the requests, I too would love a copy of your COA.
Jeremy
J scott,
Can you please email me a chart of your account on quickbooks? That would be awesome. Thanks.
You will be greatly appreciated if you can send us your chart of accounts as well.
Thanks.
Hi Scott,
Could I please get a copy of your COD as well?
Thanks!
Hi J,
Really love your site and the wealth of information you provide. I also would love to have a copy of the chart of accounts. I recently completed my first flip and would like to get it all setup in QBs. Any recommendations on entering HUD statements into Quickbooks as well?
Hi Scott! i am so glad i found your site. We are just getting ready to close on our first flip and I was searching the web for accounting software. We already have quicken and was thinking of updating to quicken for rental properties (we do have 3 rentals), but didn’t know if it would be good for flipping. Have you ever looked at that software. Also could you please sent me COA. Would really appreciate it as I do your site. Thanks,
Hi, ScottI, I would appreciate a copy of you QB Chart of Accounts, I am so happy I find this website, very helpful.
Thanks.
Great info! I will send you an email for a COA. It is nice to see someone doing exactly what I have been doing and now it is time for me to get my QB’s up and running. I hope all is working out well for you in the business.
Please send me a chart of accounts too!
Thanks for the great info. I had been going from one bookkeeping organization to another to find the exact method used for flipping houses. QB recommends using the property as Inventory and the costs as COG, but the client insists that Fixed Assets and sub-categories for the costs is the way to go. I had already divided by the categories you mentioned in your article, I am so glad I was on the right track. But I am confused on how to close off a property if the deal fails. A copy of your chart of accounts would be a great help. Thank you so much.
Thanks so much for sharing your information. Can you please send your chart of accounts for Quickbooks. Thanks
Hello,
Great info, just starting out on the flipping front here. Could I have the COA as well?
Thank you
Enjoying the site. Can you add me to your newsletter? If it’s not a hassle, I too would enjoy seeing your chart of accounts.
Thanks!
Would so appreciate your COA. We have very similar activities to yours, and current QB setup is a nightmare! THANK YOU
Hi,
Just found this page, may I have the COA as well?
Thank you
I’d love your COA too if it is available. Thanks!
Could I get a copy of your COA for flipping? I just found your site. And really need some help. Do you use the ITEMS list in QuickBooks? or just post straight to the GL expense accounts.