the next exercise is going to be making
that same purchase using the out
settlement statement but this is gonna
be exclusively specifically for property
flippers in other words this property is
not going to be rented this property is
not going to generate income so when we
purchase this property most of it is
pretty much going to be part of the
asset let me split the screen here and
show you the out settlement statement
that we're going to be using for this
exercise so this is the settlement
statement that we got and we are in the
borrower side so we're the buyer where
the borrower so we're gonna be using all
the numbers that are right there on the
borrower side so let me split QuickBooks
here on the right-hand side and I start
with a journal entry now I want to
mention that there's a $10,000 deposit
which we probably paid way before the
closing let's assume this closing happen
in June 17 2018 we're gonna use 2018 for
the date so we can use the same exercise
on the selling side assuming that then
it was sold afterwards a year later so
we'll do that
as the example so anyway so we're
assuming that the purchase for the
property started with $10,000 deposit
and here on the right-hand side you see
the actual check going to the real
estate company to this to the to the
seller of the property or to the title
company whatever it happens to be so
that $10,000 goes straight into the
fixed asset that's typically where we
want to put it so we go straight into
fixed assets and then we hit save and
close not let's do the journal entry to
mimic all the entries that are on this
our settlement author statement so let's
start with a journal entry and let's
make this six seventeen twenty eighteen
this is the purchase for a property
flipper in other words we're not gonna
have operating expenses here for the
most part so let's start simplifying by
doing the purchase price of the property
which is at 525 so we're gonna come here
and put house one two three building
fixed asset which is a fixed asset that
we created and this is going to be a
debit so we'll do five 25000 and we'll
take away that down payment that's
already been recorded so
we're just gonna put there 515 for now
and I will put here purchase price
purchase price - down payment okay or
deposit then we have the loan amount so
we're gonna have a loan so let's see if
we have that loan amount created let's
see we have there we go Wells Fargo
mortgage so I'm going to go ahead and
create a long-term liability Kobus Fargo
mortgage that's gonna be in the credit
side we'll put there - 472 500 and we
delete the description we'll just put
here loan something like that then
pretty much everything down the line
here everything it's just part of the
asset purchase is its inventory so the
loan fees the closing fees we're
probably gonna sell this house within a
year anyway so we don't want to amortize
any other stuff we're gonna throw
everything to the value of the property
so we're pretty much gonna ignore
everything we're seeing here and the
only other thing we've been looking at
is that last payment for fifty nine
thousand dollars so I'm gonna come here
and select my bank account say B okay so
this is my actual bank account and this
is the money that came out of my bank
account in this case is gonna be five
nine two forty three point thirteen so
naturally the balance is just gonna be
the additional cost of the property it's
edition of sixteen thousand dollars we
can just call this one closing costs now
if you are tracking the interest
separately in the P&L as an operating
expense then you must extract the
interest out of it I'm personally I'm
throwing the whole thing the value of
the asset but a lot of people like to
split off the interest and this is more
of financial presentation not so much
tax because tax care vary depending on
how you treat the property but if you
are going to separate interest out of
this all you have to look for it's any
items I have to do with interest
like right here prepaid interest
would be it so we would come in here and
take that amount out so we'll come here
to inter spade and put a dollar amount
which is seven five seven point ninety
six and we'll extract them from this one
seven five seven point ninety six
alright so okay be prepaid interest or
something like that okay so and you can
take it one step further if you are
going to separate property taxes as well
because I know a lot of folks like to
throw the property taxes and interest at
least into the operating expense then
you would take it one step further and
take a look at what property taxes are
being charged here so in this case
look at these property taxes for six to
six 8.50 and these adjustment are
consequently those two things are in
their part of the property taxes and
then in here there's some additional
county and city taxes being a proportion
so if you wanted to extract that you
would just make the sum in there and you
would extract it out of the value of the
property and you will put it to the
operating expense so really depends on
what is it exactly that you're not
including as part of the original asset
value so I'm going to go ahead and click
on save and close here
and then we're gonna look at the balance
sheet so let's look at the balance sheet
there we go so according to the balance
sheet my house is worth five hundred and
forty thousand dollars nine eighty five
if I click on that asset value and I'll
click here on all dates and click run
report so we can see it we see the
$10,000 down payment we see the purchase
price based on contract and then these
are essentially the fifteen thousand
almost sixteen thousand all of our
closing costs if I go to my profit and
loss report
and I'll do all dates here
I'm gonna see the interest paid from
that so let's make the assumption that's
now fast forward into the future
and let's make assumption that through
the whole year we added some some costs
to the property right so we added some
improvements and then we also paid down
the mortgage you know a couple of things
happened along the way so let me just
enter a couple of entries for that so
let me enter a check here I'm gonna go
into check and let's say we paid a
contractor or some sort so a remodeling
company and we pay them eighteen
thousand dollars and instead of category
I'm gonna go to one two three house that
fixed asset in there I can either throw
it to the fixed asset because this
inventory or if I wanted to separate it
I can do a sub account called
improvements I really don't care because
I'm flipping this property so everything
I put into this property is part of my
inventory value therefore I don't need
to separate this I'm not gonna
depreciate it I'm not gonna amortize it
everything is gonna go pretty much the
value of the property so I can put here
remodel of kitchen whatever happens to
be and and that's it that would be the
entry so let me put I'll put at the
beginning of the month for that I'm
gonna go ahead and click on save and
close so now we're increasing the value
of that property and the P&L still only
shows that interest charge now let's
also make the assumption that there was
a whole bunch of payments to the
mortgage so I'm just gonna simplify my
life just do a quick journal entry in
the real world you would see a whole
bunch of payments hitting them the
interest and hitting the principal
separately but for now we're just gonna
sort of simplify things and we're gonna
enter a bunch of and one one entry here
so I'm going to go to be away and let's
say that we had eighty eight thousand
dollars come out of our bank
this is a emulating a year's worth of
mortgage and then we'll do here we go to
Wells Fargo and we'll lower that by
eighty thousand and let's say the
balance was interest mortgage interest
whatever happens to be right so
oversimplifying this but let's say
that's what happened over a year we pay
down our mortgage by eighty thousand so
I'm gonna go ahead and click on save and
close okay so that's it that's my
interest paid if I select all dates I'm
gonna see the eight thousand plus the
seven fifty seven that we had prepaid on
the original closing document so that's
how you record the original purchase and
likely what's gonna happen both to the
P&L and the balance sheet as you start
paying off that mortgage let's run the
balance sheet notice of the property
it's worth a little bit more now because
we had that there's a additional
remodeling now all right so let's now
fast forward a year and let's take a
look at what it would look like to sell
this property okay so I'm gonna use the
same document here
but now I'm gonna look at the seller
site just so you can see the seller saga
the only thing I'll ask you to do is
just assume that the sales price went up
by a hundred thousand here so we're
gonna use six twenty five instead of
five twenty five and then down here the
balancing entry will be the last money
that you get in the bank just imagine
there's going to be an extra one there
one ninety five instead of ninety five
just so we can see kind of the gain and
the loss or potential gain and loss in
the process so at this point we don't
see any deposits here anywhere so
there's there's no deposits to enter so
we don't need to enter the deposit from
the from the buyer but if there was one
we would enter that and apply the same
logic let's go ahead and do a journal
entry now to record the sale of the
property so this happened on June 17th
2019 so we'll use that actual date and
then we're going to select on the actual
property here which is this one two
three house building and then this is
going to be a credit because we no
longer have
this asset right we're selling it so
this would be 625 so just remember that
we're adding 100,000 just to that final
sales price okay then we're going to
take their other property taxes which we
assumed that they will send to the value
of the property anyway all that stuff is
going to be the value of the property
and the only thing that we're looking at
potentially it's any interest or prepaid
interest charges which looks like we
don't have any of them so we don't have
to ignore everything else would be the
value of the property so the only big
number to worry about here is this guy
here which is the mortgage payoff so
let's go ahead and and to here was fargo
mortgage because we were assuming this
Bank was Wells Fargo and then the debit
here to decrease the mortgage balance in
this case would be three ninety five six
five six point 81 okay so that gives me
those two entries over here and then
finally I have the money being coming
into the bank which were we said we're
gonna add a hundred thousand to that so
that will be 195
so we'll put here Bank of America and
that's gonna be coming into the bank 195
to one 2.86 and then there's gonna be a
balance okay the entry is not balance
that's gonna be your closing cost right
what it costs you to sell that property
now some people what I like to do is I
like to separate the closing costs and
put already in the sort of in the profit
and loss report so they can see the
difference between the basis of the
property the improvements and then the
closing cost is really up to you how you
want to do it I'll kind of do it both
ways
to show you so let's start with the
simple one which is I'm just gonna make
it part of the value of the property so
here's my thirty four thousand dollars
these are my closing costs
okay there's Commission source document
stamps there's all sorts of things in
there there's some property taxes right
some some balances in property taxes
some seller credits that sort of thing
so this is the contract contract sales
price and we had the closing cost and we
have the money coming in to the bank
that's perfect it's beautiful I
so I'm gonna go ahead and click on save
and let me close now let's go into the
balance sheet because there's a couple
of things that we have to do here one is
this mortgage should be zero and if
you're doing your math right and the
settlement statement does their math
right that will end up at zero but if
you have any small amount there all you
have to do is journal it against
interest expenses so I'll just join or
that one I guess interest expenses let
me copy that number and do a journal
entry and then we'll do
Wells Fargo interest it was five a
mortgage and increase that liability and
the difference would be interest expense
right so that could have been a
miscalculation when I was making the
mortgage payments of that sort so that's
zero not beautiful now these are the
difference here this will be my gain or
loss so I have to send that into my P&L
so I'm going to take this number here
and do a journal entry
and then we do one two three house
building and then we're gonna do a debit
cuz we need to increase that asset and
this is gonna be gain which have an
account called properly loss gain I'm
just gonna call this from proceeds and
then click on save and close now that
property 0 we got rid of our inventory
let me go to my profit and loss to see
what this looks like and then that's my
that's my game that's my the money that
I received on on this property now some
people like to see it split off like a
set will do both examples so you can see
the difference here okay so let's go
back into that journal entry and let's
do that let's make that little change
just so you can see the contrast so let
me delete this guy over here I don't
need that one and then I'll go back to
the same journal entry I believe it was
this one not that was the mortgage that
was actually fine and then we'll do this
one no that was good too
which was the one should be any of these
let me just find find it on journal
entry there you go okay
so this so we're gonna do this one a
little bit different what we'll do is
instead of sending this to the real
estate fixed asset account we're gonna
send this to our proceeds account right
so we're gonna send these two proceeds I
created an other income called gain and
loss on property and a sub account
called proceeds okay and then this right
here is gonna code to was it gain and
loss
selling cost that's where it goes so
this one goes into selling costs and
this will be closing costs on sale okay
and then we'll hit save and close and
let's go back to that original purchase
to let me see where my original
purchases let me go to the balance sheet
and let's look at this and let's do all
dates okay so these how we're gonna
split them up what we're gonna do is we
are going to these two we're going to
separate us closing cost and then their
525 will be my original amount so my new
journal entry is now to remove these
numbers out of the balance sheet and
into the sales proceeds and selling
costs so this is the numbers that we're
gonna split off right so that me um let
me save this as a PDF so I can see it
here next to me cuz I know I'm going to
forget about it so that I put here on
the left side
okay close that and then let's take a
look at the same journal entry here
we'll just tack it onto here so what
we're gonna do in the same journal entry
it's we're gonna do gain and loss on the
property and this let's create a new
subcategory called original
purchase price
and you should spell that correctly I
recommend that and we'll make original
purchase price a other income and we'll
make this one a sub-account of
gain or loss on the property and then
we'll hit save and close so then at that
point original purchase price would be
debiting 525 and then we're gonna put
here sales I wasn't selling cause I
think it was yeah selling costs and then
that would be a
debit of was this one
18,000 and that we have a selling cost
of fifteen nine eighty five point
seventy so we're gonna call this one
remodel and we'll call this one purchase
closing costs okay
that way we can if you want to have that
history really really clear you can do
that and then at the end we're gonna
have our proceeds actually we already
had our proceeds we have to bring down
this asset actually so so 125 building
and then the difference is bringing down
the asset so we'll take removing asset
from balance sheet
and then we'll click on save so now we
just tacked on to that journal entry
because we wanted to do it a little bit
different remember the first one that I
did was sufficient but some people like
to see it in a different way so let me
run this balance sheet make sure I have
nothing left and that's perfect I have
nothing left on the balance sheet when I
look at my balance sheet I have no
longer inventory and then when I go into
the profit and loss report I can
collapse this and have my saying the
same exact gain a loss on the property
but some people like to see it split off
like this right they see the original
purchase price this is a cost of goods
sold and we have the proceeds which is
what I received as per the contract and
then we have the selling cost which I
can click on and have all the history of
what everything is now some people want
to take it a step further and go into
the closing cost of the sale
let me close that and maybe split off
commission from everything else you can
do that as well so let me bring that
into the equation here so we'll put here
Commission's Commission's on sale
and Commission amount is these two
dollar amounts here so that's 15 750
plus 90 180 7.50 and then I just take
that out out of here so 24 937 point 50
and then we have closing costs and sales
which are duck stamps and stuff like
that so and then we have commission and
sale if you want to separate them at the
end of the day this is all going to give
you the same result but for reporting
purposes if I want to look at the entire
history of this property I got this
beautiful report here that tells me my
original participants my sales price all
the money that I spent so you can know
exactly how the profit and loss was
calculated so with this tutorial you
should be able to register a purchase or
a sale of a real estate property for a
property flipper whose intention was to
buy remodel and sell and never generate
any income from it
you