Author Topic: First Rental Property - How do I track this asset?!  (Read 677 times)

Wayward

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First Rental Property - How do I track this asset?!
« on: May 16, 2020, 08:55:20 PM »
Hi All, I just closed on my first investment property yesterday! 

Iím trying to update my personal finance spreadsheet, but am unsure if I should add the value of the property to my assets column and the loan amount to my liabilities column.  Or should I have a separate spreadsheet just for the investment property and not have this in my personal finance spreadsheet at all?  The property is in my name, not an LLC.  I do plan on having a separate spreadsheet to track rents and expenses, itís more that my personal finance spreadsheet seems messed up now Ė the money for the down payment was in a high yield savings account and since I used it to close on the property, my net worth took a huge hit.

Would any experienced real estate investors have advice on how to keep good records?  Can anyone share their spreadsheets for tracking personal finances and real estate?  I would really appreciate it!

Here are the numbers:

Property appraisal:             $129,000
Price:                                $125,000
Down payment:                 $25,000 + closing costs ($9,440.58)
Loan amount:                    $100,000 @ 4% 30 year fixed
P&I:                                  $477.42
Estimated escrow:              $273.53
Estimated total:                 $750.95 per month
Management fee:               6%
Rents:                               $1,350 per month

The property is tenant occupied with a 1 year rent guarantee from the property management company.  Rehab is gorgeous and has a 1 year warranty.  At least 5 year service guarantee on roof, HVAC, and water heater.

The closing costs were much higher than anticipated, more than double what Norada (turn key provider I used) estimated; being this is my first property I definitely made a few mistakes.

Michael in ABQ

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Re: First Rental Property - How do I track this asset?!
« Reply #1 on: May 17, 2020, 01:36:04 AM »
I would definitely add it to your personal balance sheet. Your total net worth should not have changed more than the cost of the closing fees. You had $35k in cash, now you have $129k in this asset with $100k liability, leaving you with $29k in equity, down from $35k.

I'm not sure the exact rules for depreciation recapture if it benefits you more to use $129k or $125k as your basis, it won't make a huge difference either way.


You should be able to find a spreadsheet or template for one that will show you how much of each mortgage payment is going towards principal versus interest. Each month as the mortgage is paid down your liability for the mortgage will decrease, and your overall net worth should go up. I wouldn't both trying to track the value of the house monthly, maybe once a year update it. Just keep in mind that if you're using Zillow or the Assessed value those could be very closely to the market value, or miles apart. Here in New Mexico, we're a non-disclosure state so Zillow values are not accurate. Assessed values are generally well below market - unless the property just sold in which case it will often be reassessed at the new purchase price. Though once again, being a non-disclosure state the assessor won't necessarily know what that price was.

Make sure you're setting aside some portion of the rent for reserves. Yes you have a warranty for the roof, HVAC, and water heater. What about if the tenant brings a dog in that totally destroys the flooring and walls and then you can't get them to pay for the damages? Or the washing machine leaks and floods the house? I had a coworker wake up to a couple of inches of water in his whole house when a water pipe just suddenly gave out after decades (probably weakened by chemical reaction with the soil, combined with a new water heater that had greater pressure and burst the weakened section of pipe). Some of those expenses might be covered by insurance, some may not. Either way you'll probably be waiting a while to get your money to fix the problem. You'll be glad you set aside $100-200 per month into that fund to be able to cover any unexpected expenses or to pay the expenses if you have vacancy or a non-paying tenant in the future.

SeaWA

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Re: First Rental Property - How do I track this asset?!
« Reply #2 on: May 17, 2020, 08:27:04 AM »
I would definitely add it to your personal balance sheet. Your total net worth should not have changed more than the cost of the closing fees. You had $35k in cash, now you have $129k in this asset with $100k liability, leaving you with $29k in equity, down from $35k.

I'm not sure the exact rules for depreciation recapture if it benefits you more to use $129k or $125k as your basis, it won't make a huge difference either way.

You should be able to find a spreadsheet or template for one that will show you how much of each mortgage payment is going towards principal versus interest.

I own one rental. I've owned it for 3 years. Best decision I made was to open a separate bank account just for the rental. Rent goes in to that account and PITI goes out. My rent margin stays in there, and I draw from it when I make repairs/updates. It made tracking expenses and savings so much easier. It made taxes so much easier.

Second best decision was to use Mint, or one of the other free finance tracking packages. This made tracking all the various bank accounts so much easier.

Third decision was to put the last month and deposit into a brokerage account and put it into the market. My logic was that I'd bring new tenants into the place and use their last/deposit to pay back the departing tenants. I have had to do a little accounting movement when the account was short of cash one time, but the gains over the last 3 years have been well worth it.

clarkfan1979

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Re: First Rental Property - How do I track this asset?!
« Reply #3 on: May 17, 2020, 02:03:25 PM »
I have 3 rental properties (4 doors). I pretty much agree with everything SeaWA said.

1) Separate checking account specifically for the rental.

2) Get a credit card or debt card that is linked to the checking account specifically for the rental.

3) Have the mortgage payment be pulled directly from that checking account for the rental.

4) Also use mint to track expenses.

Wayward

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Re: First Rental Property - How do I track this asset?!
« Reply #4 on: May 20, 2020, 08:53:01 AM »
Thank you all for the replies!  I added the property to my personal finance spreadsheet and Michael was definitely correct, my net worth didn't take much of a hit.

I didn't even consider a separate checking account, so thank you SeaWA and Clark!  Tax time was a concern of mine so this way it will be much easier with all expenses coming out of the second checking and tracking through Mint :)  I will definitely be setting aside a portion of rent for vacancy and maintenance. 

@SeaWA - I have a personal Vanguard brokerage invested in VTSAX already, do you suggest putting the deposit for the rental into this same account?  Not sure if it's possible to open a second account with Vanguard, but getting some gains is better than the 0.05% interest the bank will give me.

CupcakeGuru

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Re: First Rental Property - How do I track this asset?!
« Reply #5 on: May 20, 2020, 11:22:24 AM »
Wayward, you do not mention what state you are located, but a lot of locales require that deposits are in a escrow or other bank account. The deposit is technically not yours, you are just holding it for the tenants.

Wayward

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Re: First Rental Property - How do I track this asset?!
« Reply #6 on: May 20, 2020, 06:30:31 PM »
Wayward, you do not mention what state you are located, but a lot of locales require that deposits are in a escrow or other bank account. The deposit is technically not yours, you are just holding it for the tenants.
The property is located in Pennsylvania.  I need to speak to the property manager about the deposit, I'm not sure if it will be held in escrow.  I know the property taxes and homeowner's insurance are in escrow though.

SeaWA

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Re: First Rental Property - How do I track this asset?!
« Reply #7 on: May 25, 2020, 10:14:59 AM »
Not sure if it's possible to open a second account with Vanguard, but getting some gains is better than the 0.05% interest the bank will give me.

Yes, you can open multiple accounts with Vanguard. I have several. One for me, one joint with my wife, a pre-tax account, and post-tax (Roth), ect. You should be able to open a new account on the website.

However, CupcakeGuru is right, you should check to ensure this is legal.

I have a single-family home with a lease of 1 year or more, so it looks some of the restrictions on how the deposit is held are waived. I'm looking into it now.