Ready to level up your bookkeeping with REI Hub? Great! Whether you just purchased your first investment property or your twentieth; REI Hub’s real estate and rental property accounting software will save you time, stress, and money!
No matter how many doors you have, the basics of setting up your REI Hub Portfolio are the same. In this guide, we’ll introduce you to REI Hub and the various components and concepts the system is comprised of. As you read through, keep an eye out for links to additional resources providing more context in specific areas.
Here is a quick overview of what we will discuss. Expand the side-bar on the right to see the table of contents and skip to a section below!
- Bookkeeping Start Date
- Properties and Units
- Bank and Credit Card Accounts
- Loan Accounts
- Property Management Accounts
- Fixed Asset Accounts
- Chart of Accounts
Let’s get started!
First, a note on Portfolios. In REI Hub, the Portfolio is the top level of the reporting structure. Properties live underneath the Portfolio, and Units live underneath Properties (if applicable). Some reports, like the Balance Sheet, are only available at the Portfolio level. Most reports, including the Net Income (or Profit and Loss), are also available at a Property by Property, and Unit, level.
Generally speaking, a Portfolio will correspond to a legal entity. Most separate businesses need fully separate books, and thus their own Portfolio. This is especially the case when multiple partners/investors are involved and a Balance Sheet is required to file a tax return.
The main exception is if all your properties are either in your name, or held in single-member LLCs for asset protection. In this case, there are no other beneficial owners or legal entities with individual filing requirements, so everything is a pass-through that flows through to your personal tax return (on the IRS 1040 Schedule E). So with only one tax return involved, you’re generally in the clear to keep all your properties in just one Portfolio.
Your Portfolio is also relevant for your day to day bookkeeping. Overhead, or any transaction for your rentals that is not directly attributable to an individual Property can instead be booked to the Portfolio level of your account. View these transactions on the Net Income by Property report, in the ‘None Assigned’ column.
Each Portfolio carries its own subscription (and free trial!). You can add and manage multiple Portfolios from one set of REI Hub log-in information. Access for additional users is also segmented at the Portfolio level.
Bookkeeping Start Date
Your Bookkeeping Start Date defines the period of time that REI Hub’s records should be considered definitive. You will be prompted to select a Bookkeeping Start Date as part of the initial set up. To view or edit your Bookkeeping Start Date after setup, visit the Portfolio Settings Page in the right hand menu.
Setting a Bookkeeping Start Date is also an essential part of transitioning from one accounting system[LINK] to another. With a Bookkeeping Start Date in place, you can set Opening Balances based on the Closing Balances in your previous accounting system.
You can choose any date as your Bookkeeping Start Date. The most commonly chosen date is January 1 to align with a new calendar year. If you choose a date other than January 1, you will need to make a summary entry for year-to-date revenues and expenses or reference those numbers to prepare your annual tax return.
Properties and Units
As you may expect for real estate investing accounting software, Properties are the basic reportable item in REI Hub (and function similar to a ‘class’ in generic accounting software). When setting up a new Portfolio, the first thing you do is create a Property. Taking your rental business transactions and categorizing them by Property and Account (revenue, expense, and otherwise) is the central bookkeeping task required of real estate investors.
A Property can be just one unit (like a condo or single-family home) or a multi-unit (like a duplex or apartment building). Units are the lowest reporting element in REI Hub (Portfolio > Property > Unit). Your REI Hub subscription plan is based on the number of units (also referred to as doors) in your Portfolio.
If you’re not sure if you should set up a Property as a single or multi-unit, consider what kind of reports you want to be able to generate. If you have a single family home, but you rent it by the room and want to be able to see your income split by room, you need to set it up as a multi-unit property. Similarly, if you have a large property with a detached guest cottage, but rent it all out to just one person, you should set it up as a single unit Property.
Bank and Credit Card Accounts
Adding your Bank and Credit Card Accounts to the REI Hub system helps you see where your funds are and track their flow through your business. In REI Hub, you can create your accounts as either Linked Accounts or Manual Accounts.
Linked Accounts utilize secure Data Providers to connect to your financial institution and automatically import your transaction record. We recommend linking all accounts that are primarily used for your real estate investments. Using a dedicated business account is the best foundation for successful bookkeeping, and linking that account to your accounting software is the best way to make sure you don’t miss booking expenses and maximizing your tax deductions!
After an account has been linked, you can view the imported transactions on your Import Feed. Access the Import Feed from either the Banking page or directly on the left side menu. Imported transactions have the date, amount, description, and originating account. These imported transactions need to be ‘booked’ by adding in the appropriate Expense/ Revenue Account in order to become an official part of your records.
Manual Accounts have no direct connection to your bank, so transactions must be added manually or uploaded via Excel. Manual Accounts work well for bookkeeping in batches with uploading, or for accounts without a lot of transactions on them.
If you choose not to create any Bank or Credit Card Accounts in REI Hub, the default account for payments and deposits is Owner Funds. You can think about Owner Funds as your personal money. When you book an Expense paid by Owner Funds, the outcome is the same as making an Owner Contribution to a business checking account and then paying the bill from that account. Investors can still keep accurate books using exclusively Owner Funds, but you lose many of the double-checks and automations that using designated rental accounts provide.
In terms of transitioning over from another accounting system- if that Bank or Credit Card Account exists in your previous system and is still in use, it should be created in REI Hub as well.
There are two types of transactions in the REI Hub system. Imported Transactions are what comes in from a Linked Account (or Excel upload)- including the date, amount, description, and originating account. Imported Transactions are a data source- they are not a part of your actual financial records yet.
In order to add an Imported Transaction to your records, you need to ‘book’ it by adding the additional information needed for complete bookkeeping. This means specifying the type of transaction (expense, revenue, loan payment, etc), the relevant accounts (e.g. Repairs for an expense, Rent for a revenue), and where the funds landed. All the information we have is prefilled, and there is a drop down for every other field with the available options - it’s easy!
After everything has been saved, the Imported Transaction now points to a Booked Transaction. Booked Transactions are your financial records- the information all of the reports pull from. You can consider the Booked Transactions page to be the general ledger. As REI Hub is a double-entry accounting system, each Booked Transaction has at least one credit and debit.
Want to save a ton of time? You can automatically book Imported Transactions using Transaction Matching Rules based on the description or amount. All transactions that are added manually to the system are automatically Booked Transactions. Linked Accounts and/or uploading transactions are a time-saving convenience, but not required to fully keep your books in REI Hub.
Similar to Bank and Credit Card Accounts, adding Loans allows you to track the flow of funds through your business, as well as things like principal pay down and estimated equity. Before you can book a Loan Payment, you first must create a Loan account.
Loan Accounts in REI Hub encompass both mortgage and non-mortgage loans. Creating a Loan automatically adds it to your Chart of Accounts as a Liability Account. If it is an escrowed loan, the Escrow Account is also automatically added to the Chart of Accounts as an Asset Account.
The Loan Payment Template helps you automatically break down regular Loan Payments into their component Principal, Interest, and Escrow (if applicable) parts.
Loan Accounts are not electronically linked in the same way as Bank and Credit Card Accounts, as Loan Payment transactions are typically already imported from the bank account side.
Many real estate investors utilize property managers or property management software that can receive funds and/or pay expenses on behalf of the property owner. While this can be a great help, it also carries the potential to complicate your bookkeeping and accounting. REI Hub offers Property Management Accounts to accurately reflect the flow of funds through these accounts in your Portfolio.
Property Management Accounts function as a clearing account between the tenant and your rental checking account. After creating a Property Management Account in REI Hub, you will see it available as a Payment Account and a Deposit Account. This means that you can book both revenues and expenses directly to the Property Management Account and then subsequently book the distribution from Property Management to your bank account.
Handling transactions from your property manager or property management software in this fashion reflects what has happened in real life, and makes accounting for net deposits, delayed payouts, and property managers who keep a running balance from month to month much easier.
Booking transactions to your Property Management Account instead of one of your bank accounts does not impact your tax liability. A property manager receiving rent on your behalf is acting as your agent and is the same thing as you directly receiving that rent in the eyes of the IRS.
All of the above being said- Property Management Accounts are optional in REI Hub, even if you have a property manager or property management software.
Fixed Assets (also known as Capital Expenses) are your depreciable items- the investment property itself and the capital improvements you make to it. These non-operational costs are not written off against income in a single year, but are instead recovered over a preset period of time through depreciation. For example, residential rental property is depreciated on a 27.5 year timeline, while Appliances are depreciated on a much shorter 5 year timeline. Read more detail from the IRS here. If you have basis and accumulated depreciation information in your old accounting system and want to transfer it over, you need to first create Fixed Assets in REI Hub. You should create separate Fixed Assets for each Property and any tracked capital improvements (a kitchen renovation, a roof replacement, etc) that you are currently depreciating.
After the Fixed Asset has been created, enter the transactions that comprise the Asset. For transitioning accounting systems, you will use the Opening Balance transaction type to set balances for accounts like Buildings (depreciable basis), Land (non-depreciable basis), and Accumulated Depreciation. More on that below!
Fixed Assets created during your current accounting period (like a recent property purchase) will be handled slightly differently than those being transitioned over from your previous system. To properly enter a recent property purchase, a journal entry should be created based on the closing statement. This entry sets the property basis and also reflects transactions that flow through to your operational P&L. An ongoing renovation might require a series of Capital Improvement transactions as bills are paid.
After creation, you’ll depreciate fixed assets over their useful life, lowering their recorded value in your books. Most investors record a single annual depreciation entry for each asset.
If you are not currently tracking your Fixed Asset information - perhaps your tax preparer is doing so on your behalf. That’s OK, this is an optional feature in REI Hub. You can easily keep your operational income and expenses in REI Hub without tracking Fixed Assets. However, Fixed Assets are essential if you want the full records of your investments in one location and the ability to create a Balance Sheet for your Portfolio.
Chart of Accounts
REI Hub’s default Expense Accounts exactly match the IRS Schedule E Expense categories for the shortest possible distance between booking expenses and getting ready for tax time. The default Revenue, Asset, Liability, and Equity Accounts also include the basics of what you’ll need and can be easily expanded upon if desired.
If you are transitioning from another accounting system- make sure your Chart of Accounts matches up. If you have accounts in your previous system that do not currently exist in REI Hub, you may need to create those accounts or decide how you’ll classify their transactions moving forward.
In addition to the bookkeeping and accounting features already discussed, REI Hub also offers several organizational features. These can potentially be linked to your finances (the Mileage Tracker) but typically are more oriented towards the additional record keeping often required or desired by real estate investors and rental property owners.
The Leases page allows you to enter tenant information, detail monthly rents and security deposits, and track lease end dates.
The Mileage Log lets you enter deductible mileage expenses in the IRS’ required format. Mileage deductions are a special tax deduction, reflected on the Schedule E but NOT on the standard accounting reports that report booked transactions only. Documents and Notes can help you keep track of your non-financial records. Easily upload files (executed leases, appliance warranties, etc) and make notes, organized by Property and Unit (if desired). This allows you to keep all of your real estate investment records in one location and backed up in the cloud.
REI Hub provides a variety of reports to help you interpret your investment property performance. Most reports are traditional financial reports, like the Net Income (or Profit & Loss), Statement of Cash Flows, and the Balance Sheet. Some are more returns oriented, like the Net Operating Income. And finally, we also offer an automated tax focused report for Schedule E investors.
Take note that REI Hub’s reports all show actual numbers, based on the transactions booked into the system for the given date range. When compared to proformas or anticipated steady state income and expenses, you can expect to see significantly more fluctuation in your actual numbers, especially early on in an investment’s life cycle!
Hopefully this overview has been helpful in understanding how to get set up in the REI Hub system. If you would like some direct assistance getting started or have any questions at all, please reach out!
We actually like to talk about bookkeeping and accounting, and we would be happy to assist you. Email us at firstname.lastname@example.org, contact us through the system, click here to schedule a time for us to call you, or call us directly during business hours at 888-939-6865!