How do I enter a cash out refinance?
How do I enter a cash out refinance?
Fully accounting for a cash out refi is a bit complicated, as it is built off the closing statement and requires a manual journal entry since multiple accounts are touched. Here are instructions for entering refinance journal entries based on the closing statement.
The minimum you need to do yourself for a refinance is to create a new loan account for the new loan so that you can start booking the loan payments as they occur.
You can also book the cash out proceeds in your import feed by selecting the 'Transfer Between Accounts' transaction type and selecting the 'Refinancing Proceeds' account. This will get the transaction booked and show the refinancing proceeds on your balance sheet so that you or your CPA remembers to fully account for the loan closing before tax time.
Based on how much of the work you'll be doing versus having your CPA help, you have several options:
Follow the instructions in the Knowledge Base article linked above to create and enter journals yourself for the closing of the new loan. This will capitalize closing costs associated with the loan, claim any immediately deductible expenses, close out the old loans, and establish the starting balance of the new one.
Send the closing statement to your CPA to determine the capitalized amount and extract deductible expenses before filing next year's tax return. This is particularly common if a financial professional handles your depreciation calculations. In this case, you can book the cash to close as a transfer to the 'Refinancing Proceeds' account to record the movement of funds without an entire journal, as described above.
Reply to this email with your closing statement. If you would like to outsource the journal entry creation, REI Hub charges $100 to have our accounting specialist analyze your closing statement and make the journal entry on your behalf. Just let me know if you want to go that route. Our turnaround time is typically about one week.
Why is my loan balance different on the loans page and Balance Sheet?
Why is my loan balance different on the loans page and Balance Sheet?
The loan account on the balance sheet and the book balance on the loan account's dashboard only include the journal entries for each respective account. If all we have in the system are loan payment transactions, the balance sheet will only reflect the amount of principal paydown. Once you add an opening balance for the loan, we should see the total display correctly (opening balance minus the loan payments).
On the Loans page, the balance is derived from the 'Current Loan Balance' we ask you for in the Loan Payment Template, minus the principal amount of subsequent payments. The 'Current Loan Balance' in the payment template is used to calculate amortization but does not automatically create a journal entry in the system.
It works this way because many users want to book their loan payments and automate the principal/ interest/ escrow split as quickly as possible but aren't necessarily concerned with the balance sheet. The 'Current Loan Balance' works to help us get the automation up and running but doesn't function well as an opening balance.
Depending on how recently you acquired the loan, you can add the opening balance (if the loan originated before this year) or add it with the property purchase journal entry (if it's a new loan in this accounting period).
What should I do if my loan payment included late fees?
What should I do if my loan payment included late fees?
The late fee you paid to your service provider will be a deductible bank service fee separate from your ongoing monthly mortgage payment (which continues to contain principal, interest, and escrow). I recommend splitting the payment into two transactions reflecting the normal payment amount and the late fee.
The late fee can be booked as an expense to your Legal and Professional Fees account (or a custom subaccount you create for bank fees), and the loan payment should then match and be bookable using your normal loan payment template.
Can I add a line of credit as a credit card, instead of as a loan?
Can I add a line of credit as a credit card, instead of as a loan?
Yes, you can set up a line of credit as a credit card instead of as a loan since they are both liability accounts.
However, this is typically only done if you have lots of transactions or direct purchases on the line of credit, and want to be able to access it easily as a Payment Account when entering transactions. Standard loan accounts don't show up as Payment Accounts for expenses and fixed asset purchases, while credit card accounts do.
What are the different pieces of a mortgage payment?
What are the different pieces of a mortgage payment?
Your loan payment has three components: principal, interest, and escrow (if applicable). Some, but not all, mortgages are escrowed, which means that the mortgage servicer maintains an account of your funds (an escrow account) for use in paying property taxes and insurance. They fund this account with a portion of your monthly loan payment.
Your principal paydown is repaying borrowed funds. It is never an expense but does reduce your operating cash flow. That report is one of the most useful for many investors. You'll see sections for both your operating income and debt-related cash flow.
The mortgage interest paid is an expense and immediately tax deductible. It shows in the expenses list with each loan payment that you make.
Your escrowed expenses will also become deductible when your mortgage servicer pays them. The IRS will only accept actual expenses, not your lender's estimate, which funds your escrow contribution. At the end of the year or when your lender pays a tax/insurance expense, enter that actual escrow expense into REI Hub (screenshots available at the link).
Can I have a multi-property loan for some, but not all, of my properties?
Can I have a multi-property loan for some, but not all, of my properties?
Each loan payment has only one transaction scope, meaning a single loan account cannot be assigned to multiple properties. There are two alternatives for handling multi-property loans in REI Hub's system.
Hold the loan at the portfolio or sub-portfolio level: Simply leave the property field blank when setting up the loan account. REI Hub's default proration will split the interest evenly between active properties in your portfolio on the Schedule E, or you can manually prorate the mortgage interest expense at the end of the year to get the desired amount on your tax forms. This is suitable for umbrella loans held by an overall entity.
Prorate the loan into several loan accounts: Create individual loan accounts that add up to the total loan with the appropriate amount assigned to each property. When a loan payment is made, you would also split it into its component pieces, each triggering the loan payment template of a prorated loan account. You can save this split transaction as a rule the first time you do it for future automation.
The best option for your case likely depends on how important it is to assign a specified loan amount on the property level versus showing one total for the portfolio.
How should I handle hard money or private loans?
How should I handle hard money or private loans?
You should set these private loans up on the Loans page, similar to setting up a regular mortgage. Under 'Loan Type' select Hard Money Loan or Other. This determines if the interest expense goes to the Mortgage Interest or Other Interest expense accounts on the IRS Schedule E. Also uncheck the 'includes an escrow account' box (since most private loans aren't escrowed). You will likely not want to set up a Loan Payment Template, because the repayment schedule of private loans likely doesn't match the standard mortgage amortization schedule.
After you have created the loan, you will be able to book transactions to it. If you have a deposit in your bank account for funds received from the loan, you can book that transaction as a 'Transfer Between Accounts' and the new loan account as the 'Transferred From' account. This would serve as the opening balance/origination transaction for the loan.
You can book payments on the loan using the 'Loan Payment' transaction type. You will enter the principal/interest split manually. If a payment you are making is entirely interest, you can use the 'Expense' transaction type instead. Or, if the payment is entirely principal, you can use the 'Transfer Between Accounts' transaction type. But for any payment that has principal and interest, the 'Loan Payment' transaction type is the way to go.
Any Expense or Transfer transactions can be automated using transaction matching rules based on the description or amount of the imported transaction. The Loan Payment transactions can't be automated in the same way (unless it's a standard mortgage that can use the loan payment template) because the system won't automatically know the principal/interest split.