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chrisgeo43
March 19, 2018
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Accounting for a Cash out Refinancing

  • March 19, 2018
  • 1 reply
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Hi,

 

I have some limited accounting experience and am setting up a business account in Quickbooks. My question relates to rental properties. 

 

I purchased a property all cash in 2017. Once the property was fixed and rented, I obtained a mortgage to pull out some cash. How do I account for this? In my banking account linked to QB I have:

 

Cash in (wire from lendor / bank)

Cash out (paid to my personal banking account)

 

Would this be categorized as mortgage, owner's investment or something else? If anyone has experience with this I would appreciate it. Thanks!!!

 

Chris

Best answer by Rustler

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? 


@DecaturInvestor wrote:

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? 

 

I don't see what an appraisal has to do with how much you get at closing.


If you are buying, then you took out a mortgage. Lets say the property sells for 100K, but you took the mortgage out for 160K getting the 60K in cash.


The property would be a fixed asset, the mortgage would be a long term liability. When you enter the liability it would be split:
Property fixed asset account, $100k debit
bank, $60K debit
mortgage liability, $160K credit

1 reply

W
WineGuy
March 21, 2018

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!

john-pero
john-pero
March 22, 2018

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.

    D
    DecaturInvestor
    May 23, 2018

    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? 

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