Accounting for a Cash out Refinancing

Hello chrisgeo43.  Starting with the basics, what is your business entity?  Sole proprietor, LLC, S or C corp?  The property is certainly owner equity and an asset.  A mortgage is a loan against it and a liability.    The cash pulled out reduces your asset value and equity.  How you manage and account for the rental income will depend on your type of business entity.  As will the expenses associated with property improvements.   Good luck!

Loans have no effect on book value of an asset. The asset in question has a basis comprised of purchase price and charges plus improvements. I buy a house for 20k cash and 2k in closing costs, my basis is 22k. Now I spend 10k on fixing it up basis is 32k but it gets appraised at 50k due to some sweat equity and I can borrow 70%oan to value so get a mortgage for 35k, that is new item loan type, LongTerm Liability and an offset deposit in banking.

Cash movement in, such as personal money to buy business property is usually owner/member contribution and cash movement out is owner/member draw.

It is mostly and highly recommended that rentors become LLC entities. Ray Lucia says each property should be its own LLC but I believe that to be overkill unless you have different investors.

What if in this scanario that it's appraised for much more and at closing you were given $60k. how to you account for the cash given? 

Thanks I was trying to see if there was something additional needed for the cash out.

side note the appraisal does matter in the context of without the right amount of appraisal coming back you don’t have any cash to record. 

An Appraisal is just that, a best gues as to what the property will sell for.  A mortgage company uses that to determine the max they will loan against the property.  What they will loan in excess of purchase of price is their decision and the appraisal is just one factor they take into account

The appraisal is the market value of the property based on comparable (comps) properties in the same market area. The lender will loan based their own criteria and it is usually 70-80% of the appraised value for investment or rental properties.

E.G. if the the appraised value is say $300,000 the bank will loan 80% of the appraised value you will get a loan for $240,000. You put into renovating $180,000. The bank will give you $60,000 at closing. 

The appraisal is the market value of the property based on comparable (comps) properties in the same market area. The lender will loan based their own criteria and it is usually 70-80% of the appraised value for investment or rental properties.

E.G. if the the appraised value is say $300,000 the bank will loan 80% of the appraised value you will get a loan for $240,000. You put into renovating $180,000. The bank will give you $60,000 at closing.