QUICKBOOKS FOR FLIPS
Although accounting for your business may seem dull to most business people, it is an absolute necessity. I have found accounting interesting, but of course that is my background.
A versatile piece of software that can keep track of your investing activities is QuickBooks. I have used QuickBooks for all aspects of real estate investing that I have participated in, this includes flipping houses, accounting for rental properties and also hard money lending.
The way I use QuickBooks for flipping and hard money lending is more straight forward then the way to use it for rental properties. Using QuickBooks for large numbers of building can be cumbersome, but I have used it for some eight to ten buildings and at least thirty units without a problem. There are software packages specifically designed for tracking rental activities, but if you are an accountant you will recognize the fact that many are not your typical accounting programs, more are designed to keep track of rental properties, tenant activities and rental property owners if you are managing properties for multiple owners.
The way I set up QuickBooks for flipping houses is to put the purchase price and expenses of buying the house on the balance sheet as an asset. All expenses related to rehabbing the house, holding the house and selling the house are also on the balance sheet as sub-accounts.
I set the address up on the balance sheet and use sub-accounts for the purchase expenses, holding expenses, rehabbing expenses, and selling expenses. I find that breaking things down further through the use of the QuickBooks class system provides another way of further distinguishing expenses. For example, the rehab category might include classes such as electrical, plumbing etc. The holding category might include class items such as utilities, insurance, interest on any loans and so on. Using class categories rather than using another layer of sub-accounts helps to keep the balance sheet a bit cleaner.
Once the job is complete, and the house is sold, I take the revenue as income identifying that house address as an income account on the Income Statement (P & L) and I move all of the related asset items over to the Income Statement into a cost of goods sold account. This is a contra-account above the gross profit line under the related income account. In other words, the account appears directly under the revenue account so it gives me a gross profit on that project. From the total of all of the gross profits I deduct any other general expenses I have, such as office expenses, telephone, transportation etc. to come up with the net income. If you have used QuickBooks I hope with some close reading you can follow how I handle accounting for flips. If you haven’t used QuickBooks you may want to check its usefulness. In my opinion you do not have to be an accountant to use the software. I will discuss using QuickBooks for rental properties in the next blog.