My client, Ava, has purchased properties that she will be using to rent out to tenants.
Ava has hired AccuraBooks to be in charge of all the bookkeeping for these endeavors.
Specifically, Ava owns three condominium units; each of these units must be treated as if each was an actual separated housing structure.
So, to book the actual purchase of the properties, I created Fixed Asset type of accounts (in QuickBooks) to create these properties and the associated sub-accounts for each to separate the purchase price, loan costs, future improvements and accumulated depreciation.
I then reviewed the HUD settlement statements for the detailed purchase information for each property and booked the financial (general journal) entries like this:
- Debit to the purchase price of the unit.
- Debit to the loan costs (your CPA may want to expense out some of the loan costs instead; if that is the case, then you will also make a separate debit line entry to an Expense type of account to categorize these non-capitalized closing costs).
- Debit to a separate Escrow account you will create as an Other Current Asset type of account.
- Credit to the initial principal amount of the mortgage loan.
- Credit to any cash or owners contributions that helped fund this property purchase.
If Ava should ever decide to refinance her mortgage loan, especially with a different lender, I will need to review both the settlements statements for the close of the old loan and the statements for the refinanced part of the new loan to ensure the escrow and old mortgage loan amounts are appropriately zeroed out in the bookkeeping platform before proceeding with the financial recordkeeping for the new mortgage terms.
Note: AccuraBooks is a bookkeeping firm only, so please consult with your Certified Public Accountant for verification and clarification about the contents of this article.