How to enter a refinance in REI Hub
Refinancing investment homes is a normal part of the process for many real estate investors. Refinancing can help you take advantage of better interest rates for a lower monthly payment or to pull cash out after the property has risen in value. This guide outlines how to make and enter a journal entry based on the closing statement from your recent refinance.
Refinances, like property purchases and sales, are complicated transactions that touch multiple accounts and require slightly more accounting knowledge and the use of manual journal entries. If you work with a CPA or tax preparer, they may plan to handle it on your behalf, in which case, you may choose whether or not to enter this information into REI Hub.
To enter in a refinance journal entry:
1) Add a Loan account for the new loan
Create a new Loan account for your new financing. A loan account must already exist before we can assign transactions to it or select it in a manual journal.
2) Open a manual journal entry
From the top of the left menu, click Add Transaction and then select Manual Journal from the 'Other' column:
3) Enter in the base details
Enter the closing date and appropriate property. Add a description of your choosing, such as 'Property Sale Journal.'
If you already have a fixed asset for this property where you entered a property purchase journal entry or fixed asset basis, select it from the dropdown. If you do not currently have any fixed assets or basis information in REI Hub for the property in question, simply leave the fixed asset field blank.
4) Add the debit lines
The Debit lines will be:
- The old loan account and the amount of loan payoff. This should zero out the loan account.
- Your bank account that is receiving funds and the amount of those funds. Owner Funds could be used alternatively if you are not tracking funds into your bank account.
- You will omit this line if your refinance did not include a 'cash-out' component.
- Capitalized closing costs, summed together. These include title fees and insurance, surveys, recording fees, legal fees, and transfer taxes.
- Expenses incurred in the financing process. These will be entered with the specific expense account (e.g., Insurance) and the amount, which will flow through to your Schedule E/ PnL and be deducted against income in the same year. These costs include property taxes, insurance, HOA assessments, and prepaid mortgage interest.
- Initial escrow account contribution.
- If your new loan is not escrowed, you will omit this line.
5) Add the credit line:
The only credit line will be:
- The new loan account and its full amount.
6) Save the journal entry
Optionally add a file or image of the closing statement and save the transaction.
7) Mark the old loan as inactive
After a refinance, you can mark your old loan as inactive. This will prevent it from displaying on the Properties page and in dropdowns, but preserves the financial information and reports.