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jenakason
Level 1

Mortgage for rental property

I am wanting to correctly set up a mortgage in my chart of accounts for our rental property company. I have made a long term liability account for the mortgage principal and an expense account for the mortgage interest. I was also advised to set up the mortgage as a fixed asset. I also set up an escrow account as a 'other current asset'. So, I made a general journal entry that is debiting $91,500 (the original loan amount) from the fixed asset (titled Bank of America Mortgage) and credited the principal the $91,500 amount. I entered the whole first year of payments that were made and divided up the payment accordingly (principal, interest, and escrow). Looking at my chart of accounts now, the fixed asset account is the same amount as I originally entered ($91,500). The long term liability account has decreased as I expected it to (with the total principal subtracted from the original $91,500). My question is, what is the point of the asset account? Also, when I create a balance sheet report for the year, it's not balancing. 

6 Comments
AlinS
Level 2

Mortgage for rental property

I’m no expert so take what i’m saying here with a big grain of salt.

 

first thing first: you don’t setup the mortgage as a fixed asset, you setup the property as a fixed asset. there’s a big difference. 

 

i’m assuming your question is actually “what is the point of the fixed asset account?” and the answer is: so you can track CapEx and depreciation. when you setup the property as a fixed assert you may want to split that into building and land as sub accounts. you can depreciate the building but you can’t depreciate the land, so if you want to track the depreciation you need the split.

 

so your fixed asset balance is not changed by the mortgage payments (what you said that the amount is the same at the end of the year) since paying the mortage down does not changes in any way the value of the asset. is just changing your long term liabilities

 

hope this makes sense

jenakason
Level 1

Mortgage for rental property

Thank you for the response. That makes complete sense. We have a CPA file our taxes for us, so the main point of my Quickbooks entries is so I can get them the necessary rent, expense, etc. info needed come tax time. They do the depreciation on their end, so not sure I really need to do anything with the property as a fixed asset on my books. Since we typically buy properties that are worth more than we pay for and/or remodel properties that increase the value of the property, does this affect this number (right now I have been putting the fixed asset in as the amount of the original mortgage). Is it safe to assume that I don't need to do anything as far as a fixed asset account for our properties? I guess I'm a little confused because the purchase price of the property really should be the original fixed asset (not the original mortgage) but then that can change over time (typically the property/land would increase)? One last question...how would you suggest recording a down payment for a property? Typically we'll put 20-30 percent down and finance the rest. Just curious what the best method would be.

jenakason
Level 1

Mortgage for rental property

Any ideas on this? I'd appreciate some input; thanks!

KH1971
Level 2

Mortgage for rental property

Hi, I have the same questions as I’m starting a short term rental business as well.  How do I record the initial loan amount plus the deposit and down payment?

vgraft
Level 1

Mortgage for rental property

This video I found really helped me understand how to enter the asset into QB.

 

https://www.youtube.com/watch?v=iR8RoHx3aVA

 

This is a YouTube link.  If this is against community rules, please remove.

Signup for ADVANCED WEBINARS at: https://hectorgarcia.com/advancedFor recording purchase of rental property (real estate) using the ALTA Settlement Statement...
vgraft
Level 1

Mortgage for rental property

This video helped me understand how to enter the new asset into QB.

 

https://www.youtube.com/watch?v=iR8RoHx3aVA

 

Please remove if this is against Community rules.

Signup for ADVANCED WEBINARS at: https://hectorgarcia.com/advancedFor recording purchase of rental property (real estate) using the ALTA Settlement Statement...
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