Back to Basics Bookkeeping For Real Estate Investors and Business Owners

www.HasslefreeCashflowInvesting.com

Back to Basics BookkeepingFor Real Estate Investors

David Campbell Hassle-Free Cashflow Investing

[email protected](866) 931-9149 Ext 1

Renee DaggettEnrolled Agent / QB [email protected](408) 782-9640

http://www.HasslefreeCashflowInvesting.com




mailto:[email protected]


David Campbell - FounderHassle-Free Cashflow Investing

Former high school band director Self-made multi-millionaire

Real Estate investor / developer / brokerFinancial educator / author / speaker

Houses, condo-conversion, multi-family, winery, resort, office, retail, medical office, production home building

Faculty Member: Investor Summit at Sea with Robert Kiyosaki




Renee Daggett

• Certified QuickBooks Consultant with Intuit, Renee is also the founder and president of Administrative Bookkeeping Co., Inc. She received her bachelor’s degree from San Jose State University in 1989.

• Renee has corporate financial management experience dating back to 1995 and is passionate about equipping business owners with the tools they need to run their business simply and efficiently.

• Renee is also an Enrolled Agent tax preparer, enrolled to represent tax payers before the IRS. With this license, she uniquely brings peace to her clients by helping them with all the aspects of running a business.

• Renee has been a certified budget coach with Crown Financial Ministries since 2004.

http://proadvisor.intuit.com/referral/proadvisor_profile.jsp?id=P%2FEI%2FNYO6a%2B5sGz0OZbdVw%3D%3D

http://proadvisor.intuit.com/referral/proadvisor_profile.jsp?id=P%2FEI%2FNYO6a%2B5sGz0OZbdVw%3D%3D

http://www.irs.gov/taxpros/agents/article/0,,id=100710,00.html

http://www.irs.gov/taxpros/agents/article/0,,id=100710,00.html

Disclaimers & Cautionary Notes

This educational seminar is not a substitute for getting your own professional advice. This webinar is offered with the understanding that the speakers are not offering legal, financial, tax or other professional advice. Any actions with regard to the information contained in this seminar should be undertaken only upon the advice and counsel of competent legal and tax professionals. Receiving this information does not create a fiduciary or client relationship between you and the speaker.

Disclaimers & Cautionary Notes

This educational seminar is not a substitute for getting your own professional advice. This webinar is offered with the understanding that the speakers are not offering legal, financial, tax or other professional advice. Any actions with regard to the information contained in this seminar should be undertaken only upon the advice and counsel of competent legal and tax professionals. Receiving this information does not create a fiduciary or client relationship between you and the speaker.

Disclaimer

We’re not your advisors.

You can’t sue us.

http://www.billpriestinstitute.org/image/finePrint.jpg

http://www.billpriestinstitute.org/image/finePrint.jpg


ProfitMoney + Time + Hassle

ROI =

More profit with less invested



Today’s VIPs(very important points)

• Bookkeeping Vocabulary• Bookkeeping Principals• Bookkeeping Strategies




RECAP: Bookkeeping Strategies

Type of Accounting What you use it for How to do it Who does it?

Cashflow Essential for daily living (budget)

Excel and Bank Reconciliation

You and your spouse

Profit / Loss Very important for short and mid term planning

Excel or Quickbooks

You and your bookkeeper

Net Worth Helpful for long term planning and bankability

Excel or Quickbooks


Tax Accounting

Very important for mid and long term tax planning Quickbooks

You and your bookkeeper and

tax advisor




Balance Sheet+ Equity+ Assets

- LiabilitiesNet Worth

Financial AccountingBasis

GAAP Mark to Market


THREE COMPONENTS = NET WORTH



Primary Home $500,000

Rental House $125,000

Businesses $0

IRAs $150,000

Cash $50,000

Stocks / Equities $20,000

Cash Value Life Insurance $10,000

Car $25,000

Personal Property $10,000

GROSS ASSET VALUE $890,000

ASSETS

Primary Home Mortgage -$375,000

Rental House Mortgage -$90,000

Business Loans $0

IRA Loans $0

Credit Cards -$20,000

Car Loan -$18,000

Loan Against Life Insurance -$5,000

Student Loans -$50,000

Unsecured Bank Loans $0

GROSS LIABILITIES -$558,000

LIABILITIES

Contributions Into a Company $50,000

Distributions Out of a Company -$20,000

Accumulated Profit / Loss (retained earnings)

$75,000

EQUITY

Assets = Liabilities + Equity

Liabilities

EquitiesAssets =

Equity $75,000

Assets $890,000

Liabilities -$558,000

NET WORTH $407,000

NET WORTH

Who cares about this?Your banker

Your creditorsEstate taxes

Personal vanityAccredited Investor Status

a type of “savings” for future withdrawal

NET WORTH vs CASHFLOW




Profit / Loss StatementIncome Statement

Income-Expenses

Profit or (Loss)

Income-Profit

Expenses

Renee’s Secret Formula




W-2 Income $75,000

Gross Rents Received $12,000

Business Income $0

Interest Income From Savings $50

Capital Gains from Sale of Stocks $1,000

IRA Income Inside IRA

Life Insurance Gains Inside Policy

GROSS INCOME $88,050

Profit / Loss (P&L) INCOME

Rental Property Mortgage -$5,700

Rental Property Expenses (non mortgage) -$4,500

Credit Card Payments -$3,000

Car Loan -$1,800

Loan Against Life Insurance -$500

Student Loans -$5,000

Food / Clothing / Personal / Travel -$12,000

Housing (non-mortgage related) -$11,000

Vehicle Expenses (non-loan related) -$3,600

Health Care -$4,000

GROSS EXPENSES -$51,100

EXPENSESProfit / Loss (P&L)

Deductible ExpensesEarn then Spend

$1 buying power = $1 earnings

Non-Deductible ExpensesEarn then Pay Tax then Spend

$1 buying power = $1.25 earnings




Deductible ExpensesEarn then Spend$1 buying power requires $1 of earnings

Non-Deductible ExpensesEarn then Pay Tax then Spend$1 buying power requires $1.30 of earnings

SHIFT EXPENSES

Primary Mortgage Interest YES

Rental Property Mortgage Interest YES

Rental Property Expenses (non mortgage) YES

Student Loan Interest YES

Taxes YES

Car Loan Interest MAYBE

Loan Interest From Life Insurance MAYBE

Food / Clothing / Personal / Travel MAYBE

Housing (non-mortgage related) MAYBE

Vehicle Expenses (non-loan related) MAYBE

Health Care MAYBE

Credit Card Interest MAYBE

IRA Contributions MAYBE

TAX DEDUCTIBLE EXPENSES

Income $88,050

Expenses -$51,100

Profit / Loss (INCOME) $36,950

Profit or Loss (P&L)

Who cares about this?Your banker

Your creditorsIRS

YOU!!! SUPER IMPORTANT

Profit / Loss is NOT CASHFLOW!!!Profit / Loss is NOT YOUR TAXABLE INCOME!!!

Not every check you deposit is incomeNot all positive cashflow is profit

Return of Loan Principal (on loans you made)Return of Investment Principal into 3rd party companies

Proceeds of a Loan ReceivedReturn of security deposits held by YOUPrepaid items / Overpayments / Refunds




Not every check you write is an expenseNot all negative cashflow is loss

Issuance of LoansOwner Draws

Investment Principal into 3rd party companiesSecurity deposits paid by YOUPrepaid items / Overpayments

Deposits into Impound / Escrow AccountsPayments to Credit Cards

Re-Payment of Loan Principal




Multiple Income StatementsMultiple Balance Sheets

IRA

C-Corp

S-CorpLLC

Partnership

dividends

distributions


K-1

trust orimpoundaccount

reconciliation



Cashflow Statement

Starting Balance+ Receivables

-PayablesCashflow (positive or negative)




DepreciationEquipment Cost

- Non-Depreciable CostDepreciable Basis

Depreciable BasisUseful Life

Depreciation =




Depreciation Schedule

3 year - software5 year - computer7 year - furniture

15 year - loan points / property improvements27.5 year - residential (1-4) property

39 year - commercial property




Depreciation allows you to claim a loss

before you sell the asset




“Phantom Income”Owe taxes on money used to pay off loans.

No cash to pay the tax.

“Phantom Loss”Tax deductions for expenses you didn’t really pay

DepreciationAuto expenses (mileage)Home office (potential)


CashflowProblem

CashflowBonus



Purchase Price $300,000Land (*non-depreciable “doesn’t wear out”) $25,000Structure (*depreciable “wears out”) $275,000Depreciation Schedule 27.5 YearsAnnual Depreciation $10,000

Year 0 tax basis $300,000Year 1 tax basis $290,000Year 2 tax basis $280,000Year 3 tax basis $270,000Year 4 tax basis $260,000Year 5 tax basis $250,000Year 6 tax basis $240,000Year 7 tax basis $230,000

DEPRECIATION of Residential Property

Profit = sales price - acquisition priceGain = sales price - current tax basis

$290k sales price - $300k acquisition price = -$10,000 LOSS$290k sales price - $230k current tax basis = $60,000 GAIN

$60,000 GAIN x ordinary income tax rate = TAX OWED

GAIN vs PROFIT




Depreciation Recapturea tax based on your GAIN not

your PROFITYou could have a tax bill on loss.

You could have a tax bill without getting cash.

GAIN PROFIT

Sales Price - Tax Basis Sales Price - Purchase Price




Taxable Income

Gross Income- Allowed Expenses

- DepreciationTaxable Income




Income Tax

Taxable Income x Tax Rate

Income Tax- Tax Credits

- Tax Previously PaidTax Owed (or Refunded)

RECAP: Bookkeeping Strategies

Type of Accounting What you use it for How to do it Who does it?

Cashflow Essential for daily living (budget)

Excel and Bank Reconciliation

You and your spouse

Profit / Loss Very important for short and mid term planning

Excel or Quickbooks


Net Worth Helpful for long term planning and bankability

Excel or Quickbooks


Tax Accounting

Very important for mid and long term tax planning Quickbooks

You and your bookkeeper and

tax advisor




Q&A


www.AdminBooks.com

www.HassleFreeCashflowInvesting.com



http://www.AdminBooks.com

http://www.AdminBooks.com

http://www.HassleFreeCashflowInvesting.com

http://www.HassleFreeCashflowInvesting.com


Back to Basics BookkeepingFor Real Estate Investors

David Campbell Hassle-Free Cashflow Investing

[email protected](866) 931-9149 Ext 1

Renee DaggettEnrolled Agent / QB [email protected](408) 782-9640







Documents

Back to Basics Bookkeeping For Real Estate Investors and Business Owners