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hey there this is nick from income digs
welcome to this video tutorial where i
am going to show you the software that i
use and the processes i use for
accounting within the industry of real
estate specifically today i'm going to
show you actually how to record the sale
of property i'm going to use a property
that i just sold so i just closed on the
sale of a rental property that i had
owned for almost 10 years and so we
logged on the books we logged a little
bit of depreciation we had a mortgage on
it and we sold it and i want to show you
exactly how to record that sale
and how to get all the aspects of the
closing statement into quickbooks online
so if you've seen any of my videos
before you know that i always teach by
showing you exactly within quickbooks
online i will mention that if you're
interested in our end-to-end real estate
accounting course we have real estate
accounting boot camp which is ready to
go for you and to end accounting check
that out let's dive into today's lessons
where i'm going to talk to you
specifically about closing on the sale
of property so what i have here is a
closing statement of the sale now this
closing statement is actually a little
bit different than you might get it's
not like the standard format and in fact
i think it's a good one to demo on
because the standard form is actually a
little bit easier it's got debits and
credits and really kind of easy to
follow this is
something that some law firms use which
is their own little format and basically
let me talk you through what happened
with this property so so we sold it
for 182 500 okay so it says purchase
price because it's also from the
perspective of the buyer so we sold it
for 182 500 and as is typical
we are getting some money from the buyer
on taxes that we've already paid okay so
pro rated taxes we're getting that money
back and so we're getting a total of 185
000 or so okay
and similar to us getting some credits
at
that sale there's some some debits as
well so one is that the borrower already
had a deposit on hand now that deposit
was taken by my realtor okay i never
touched it never hit my book so i'm
going to show you what to do with that
we're going to put that toward realtor
fees
also we closed on the 29th of the month
and so we we had two units rented there
910 a month and 9.25 so what the
attorney is doing here is prorating on a
daily basis and saying that we owe the
new buyer that money for the rent that
we've collected in addition to that we
owe that new buyer the security deposits
we have on hand okay so we have this
total of 185.2
minus those credits to the purchaser
that balances 182 000 so in theory
that's what i should be getting before
my other costs okay so this statement
here showing how
myself and the buyer how we are working
together to find out what that buyer
owes to me and then all the other costs
associated with the closing which there
are plenty will come out of that amount
and that shows up on this sheet here
where we take the total received at
closing that 182 and then we start to
subtract out all the other stuff the
most
important one being the mortgage payoff
so i owe
87105 on my mortgage now this is one
that can be a little bit confusing
because we have to differentiate between
the principal i own owe on that mortgage
and the additional interest that they're
that they're charging me at the end
i have my realtor fee of 99.50 now
here's where i want to bring attention
to that deposit we received so that
deposit we received actually you know i
didn't receive this this actually
went into here so i'm going to put those
realtor fees as ten thousand nine fifty
because i never received that deposit we
have search survey those are gonna go to
closing costs recording fees same thing
overnight mailings attorney fees water
escrow i'm going to put toward utilities
what is happening here is my attorney is
charging me 250 to ensure that i don't
owe anything on the water
if i do they're going to use that 250 to
pay if i don't in a month or two
whenever they confirm they're going to
give me that back
same with this here the 16 95 40. so i
know that i've actually paid this tax
already for whatever reason just the
timing of this closing this
tax receipt has not hit yet so my
attorney does not have the record of
that so all they're doing is they're
retaining this 1695 just to make sure
and then once they see that it goes
through they're going to go ahead and
write me that check
to reimburse me for that okay and then
another closing cost here so in theory i
should be getting 79 000 at
closing okay so here's how i want you to
go about the sale we're going to use a
journal entry every single time but what
i want you to think about is this amount
down here
kind of our final check is that we
should get a check for this amount and
it should go into our bank feed so a
question i get all the time is
how do i categorize a bank feed
transaction
how do i do all of that stuff right
within this transaction okay and the
answer is you don't do it all here
you're not going to split this out and
do it all here what we're going to do
instead is we're going to record the
journal entry and then once we've
recorded it hopefully it will show up as
a match okay that's what i want to see
okay so one thing we can look at is is a
79 000 360 143 is that the same that is
on the closing statement yes it is okay
so we should be all set all right so
what i want to do is i want to go
through and record this sale now to do
that first i want to look at what is the
balance of this property on my books the
day before i sell it okay what i'm
looking at here is i need to zero out my
balance sheet when it comes to this
property so i currently have the
property on with some land base cost of
building i've depreciated it and i have
tiniest bit of capital improvements that
it looks like i never really
specifically depreciated either way all
of these are going to get to zero that's
key important point number one all of
these items need to get to zero
also my security deposit so i'm paying
those to the new buyer so those can zero
out and finally my mortgage
sixty 86489.67 that's what i have on my
books i keep really good books when it
comes to my mortgage so i know that
that's the value of that in fact i think
that it also accounts for a payment that
i made in july so what i'm gonna do is
we have to differentiate between this
principle
and the total payoff that my attorney's
saying i owe so
in
really what's happening here is that
difference is interest it's also the
fact that i had an extra payment so what
i'm going to do is i'm going to record
that difference as interest and then my
bank will likely refund me
the amount that i've overpaid and i'm
going to then back that out as interest
as well
so let's go through and start making
this transaction again i want these all
to be zeroed out so what i'm going to do
on my screen here is i'm going to take a
screenshot of this so that i can
actually i'm going to print it for
myself save as a pdf
and
pull it up on my other screen just so i
have
it available to me and i'll keep it up
here for your view as well all right so
let's do a journal entry
every purchase and closing
uh purchase and sale we're going to do
is a journal entry so here i'm going to
do journal entry as of the date that i
close so 6 29 2022 this just happened a
couple weeks ago
okay so first thing we want to do is
want to zero out all those fixed assets
so we know that we have land
we have
building base cost we also have building
depreciation
now in this case i actually don't have
any closing costs okay i didn't record
closing costs i typically do this is one
of the earlier properties i've ever put
on my books so back then i wasn't doing
it so notice i don't have any closing
costs i just have land buildings and i
do have some capital improvements okay
so i won't do closing costs on this
um but i typically would okay so capital
improvements and i'm going to do the
base costs i i didn't record any
depreciation on my capital improvements
therefore i don't need to bring that up
in the journal entry and this is really
an easy thing to do all we're going to
do is get this to zero so if i have 35
000 in land i want to credit that 35 000
to get it to zero okay now i am using
location tracking here this is a
property owned by me personally
so i'm gonna put it into the business of
personal okay
i'm gonna back up my
building base cost which is 79 000 so i
actually bought this property for 114
000 back in 2011.
okay so the combo of the 35 000 and the
79 000 is that 114.
i think that math works
all right my depreciation currently has
a negative eighteen thousand ninety
seven so i'm going to debit that
eighteen thousand ninety seven
okay and then my capital improvement
1681.97 i'm gonna credit that
okay
so what's happening here is my basis
what is the value of my basis so i have
a total of 115
681.97
minus 18 097 okay so we can do some math
on that and 115 thousand six eighty one
ninety seven
minus eighteen thousand ninety seven
gives me ninety seven thousand five
eighty four ninety seven okay so here is
the trick when we wanna record the
revenue so i sold this property for 182
500. i'm not going to put that in his
revenue i'm going to put the difference
between the sale price and my net basis
as my realized gains we definitely need
something in there for the income we
received and it's really the difference
of the sales price
and my basis okay
so
quickbooks is incorrectly just giving me
that difference here i'm going to copy
that and we're going to use our little
trick where we can actually
we can actually do math
within cells here so i'm going to do 182
500 that's my sales price minus
my basis that's my realized gains that i
have on that property
okay
so let's see if this all works out
now we're going to start filling in
this closing statement as we had it okay
so if we look at our
closing statement we'll come down here
first let's do the credits that i'm
getting for taxes okay so whereas an
expense for property taxes would be
debited in this case we are actually
going to
credit
that amount
okay so i'm going to let me bring this
over here so i'm going to credit
1162.50 in property taxes
and i would typically put in the
description exactly what it is but just
for um speed i'm just going to kind of
go with it here
okay the next one is uh 1688 that's my
school tax
and then i have one more
is 1563.68
make sure i'm accurate here 15 63 68
okay cool yep so that total amount is at
185 okay so
um
yep the 203 minus the 18 would be the
185 if we didn't have the depreciation
it would all go in the credits which is
which is kind of like the perfect way to
see it
but let's keep moving down everything
will work itself out or at least it
should i'm going to skip this deposit
for now because again i didn't receive
that on any end before that's actually
going to be a realtor fee actually what
i could do with it is put it as its own
line as a realtor fee so what i do for
realtor fee is i do professional
legal and professional services
let's see yep professional services so
i'm going to put a 1 000
fee now because this is kind of odd i'm
going to say deposit went to realtor
okay
what else do we have it looks like we
have some rent right so
i owe rent 60.66
because i've received rent for june
but this new owner
um has rent for june as well okay so
this would be 6066.
uh and we also have security deposit
and this would be now i yep i
differentiate them there so
here i have 9 10.
now you could combine some of these if
you want to i'd like to go line by line
typically just so that there's no
confusion if i were to ever to look at
this later
all right and let's do rental income
there's my 61.66
and then last security deposit
of 925
okay so i'm close
now here's one thing another little
trick okay now when you're going through
and you're making a lot of lines here
i'd love to be able to save my work so
that if i mess something up or if i lose
internet connectivity i don't lose it
all so if i click save here that'd be
great but quickbooks won't let me do
that because debits and credits aren't
matching yet so what i recommend you do
is just put something in here to be able
to save the transaction and be able to
come back to it later so let's just put
in whatever my next line is going to be
my next line is going to be my mortgage
payoff i have that right here as the 87
000.
so why don't i just put in that mortgage
okay now i'm going to that's not correct
but i'm just going to save it i'm going
to plan it there and save it just so i
can save it okay i just don't want to
lose my work if i if something were to
go wrong now notice that quickbooks is
guessing that 182 285.74
one little check we can do is that that
amount should be equal to what we have
total at closing which it is so we are
on the right track now we're going to
continue on with the actual amounts so
here i have my mortgage payoff
87105.91 so i could put that all in
right here i could do that uh the
problem though so i could do this 87 105
91. the problem is when i get done with
this if i look at my balance sheet
i've got 86
0489.67 it's going to show a negative
balance that we can't have the case okay
so what i'm going to do is i'm going to
record this exact amount as the mortgage
and the rest is an interest expense
okay so i'm going to take this amount
that they're saying that i owe which
check that work make sure that that's
accurate i'm going to subtract out what
i have in
in my balance sheet which is whoops i
lost the whole thing didn't i
okay so
let me just get it all back here so
we're going to do 87
105 91
minus
sorry i have a really bad short-term
memory 87-105-91
minus what i'm showing in my books which
is six thousand four eighty nine sixty
seven
oh man i messed the whole thing up
didn't it
okay let's try that one more time so i
know that i have
that's the interest so i know that i'm
going to be paying off 86 000 489
67 okay that's how i should have done it
so i'm definitely paying that much off
all right that's easier way to do it the
rest is going to be an interest expense
okay cost of goods sold
interest expense
okay and that is going to be
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where i'm going to take the 180
87 105 91
which is what i had before minus the 86
489 67
there we go the total of those is
the payoff right here okay sorry about
that we're good now
all right now we just keep cranking
through on these other expenses so i
have my realtor fees of 99.50 okay so
professional services
now i have this on my other sheet i'm
just going to kind of go through i have
830 in search okay again professional
services i don't go too crazy and
differentiating between search survey
all that stuff like whether it's legal
services professional ultimately it's
going to go in the same place
all right i have a survey of six hundred
dollars
and i'm just following this down so just
to remind you where i'm at here i have a
recording fee of 1652.50
again use the description to indicate
what you're doing
i have overnight mailings so we can keep
that going with professional services
of 95
all right i have my attorney fee of 695
right there
i don't know if i have a legal
separately i do yep legal fees of 6.95
okay let's see water escrow so 250 in
water now this is where i don't really
owe that yet but they're hanging on to
it so for now i'm going to record that
as water
all right as 250 water and once i get
the refund i'm gonna record that as
water as well and it should go to zero
same thing with this property tax this
next one the 16 95 40. i've paid that i
know i have but for now
let's put it in
and then once i get it back i can back
it right out
all right my last one here is record
mortgage discharge 50 and 50 cents let's
call it professional services
all right so we're kind of done the last
thing we have to do and this is where we
really find out if we did everything
accurately
is this net proceeds this should hit my
bank account so whatever bank account
you would deposit that check into
pull that up and that amount should
automatically populate 79
361 43 which is exactly what i'm showing
here okay so that worked it worked
perfectly all right so
i have at the top i'm indicating clear
out my basis indicate my realized gain
so sales price minus realized gains
equals your basis or you could do it the
opposite way sales price minus basis
equals your realized gains and then you
simply work through and record
everything down there making sure to
split out your mortgage between
principal and interest
interesting piece on this one just going
to bring this up here is that on this i
actually have an escrow balance i know i
do now my attorney didn't deal with that
when they they calculate the mortgage
payoff the reason why is because the
bank is used to simply refunding that
okay so
uh if you have an escrow balance
sometimes that'll get pulled into your
mortgage payoff meaning you'd pay off
less
because they're retaining that mortgage
escrow in my case what they're going to
do
is just cut me a check later for it okay
in which case i'm going to clear out my
escrow account
all right so we're good here another
little tip though what i would suggest
you always do is download the
transaction
and attach it to the journal entry
now when i save and close this a few
things are going to happen one i want to
look at this balance sheet and see
things cleared out okay so i don't want
to see
now i have some checking stuff whatever
i don't want to see any buildings any
liabilities that's all gone everything
looks good don't worry about the
checking account stuff that's just um
that's just this set of books being
really old all right so that worked
perfectly i don't see any of those zeros
i don't see anything there and then the
last part would be to go to my bank
transactions and this 79 000 now that
i've recorded the transaction i should
hopefully see a recommended match and
there it is right there so as soon as i
match this instead of going into this
and categorizing it i'm simply matching
it to the journal entry that i've
already created
right there all right so recording the
sale of property can be very very
confusing i definitely understand that
what's key is to ensure that one we zero
out our balance sheet all of our assets
must be zero all of our liabilities tied
to the property must be zero that needs
to happen
secondly
is we need to
ensure
that we are following our closing
statement accurately and making sure
that we're
attributing those funds to the right
place when it comes to the mortgage
payoff et cetera and of course we want
to make sure that we are recording our
journal entry first and then coming back
to the banking feed and doing the match
okay so i wanted to show you a very
specific example again i just sold that
property so
it seemed like a really good time to do
that and um let me know if you have any
questions about this specifically or if
you saw something like well why did you
do this why did you do that if you have
any other specific questions go ahead
and add them to the comments and of
course check out our end-to-end course
real estate accounting bootcamp we have
awesome students in there all the time
who are learning all this stuff applying
it to their own businesses and i am
there in the q and a's and in the
membership site to help with any
questions that you have okay so i hope
to see in the course but regardless
check out all the free resources
available at incomediggs.com and we'll
see you on the next video
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