Accounting

Setting up a Chart of Accounts for your Real Estate Management Company

Setting up a Chart of Accounts for your Real Estate Management Company

One of the first things you will do in any accounting system is set up your chart of accounts.

Due to multiple requests by our readers, we created another blog showing you step by step instructions on how to set up a chart of accounts. We also provided a free downloadable IIF file as well as a video tutorial in the How to Set Up a Chart of Accounts For a Real Estate Company blog. 

The chart of accounts includes all the different types of accounts (assets, liabilities, equity, revenues, and expenses) used within your business. How you set this up is your decision as the owner. Think of the chart of accounts as your foundation for your financial record keeping. Starting off on the right foot will save you thousands of dollars down the road both by eliminating rework and having the ability to clearly view your business performance. A poorly constructed chart of accounts will not allow you to see your business operations effectively


Sign Up to receive our newsletter, product updates, and discounts!

We hate spam too. You can unsubscribe at anytime.


The Chart of Accounts has Several Main Functions:

  • It creates a structure where every transaction has an associated account
  • Provides a way to share information with bankers, accountants, etc.
  • Helps with filing your taxes
  • Finally, guides you with decision-making

At the highest level, the chart of accounts includes assets, liabilities, equity, revenues, and expenses. No actual standard exists for a chart of accounts format. However, there are lots of examples. In this article, we address the best way to set up a chart of accounts for an organization that owns and manages real estate.

Chart of Account Order

Although it is not necessary to use block numbering, it is what we find to be most useful. We recommend setting your chart of accounts up in groups of 1000’s so you have flexibility and room for growth.




Special Offer from our Sponsored Link Above

NumberDescriptionPurpose
1000 - 1999AssetsBank accounts and any real estate owned
2000 - 2999LiabilitiesAnything owed including mortgages and credit cards
3000 - 3999Owner's EquityThis accounts for the financial contributions you have made towards the business
4000 - 4999RevenuesAmount earned with rental properties
5000 - 5999Cost of Goods & Services Sold (Expenses)Directly related to the sale of your service (not typically used in a service business)
6000 - 7999ExpensesAmount spent to run your real estate business, including maintenance of properties, advertising, etc.

Detailed Chart of Accounts

Next, we are going to go into individual line items for the chart of accounts recommended by Quick Action Accounting. The example below is a company that owns and manages real estate. Give yourself room for growth so you can easily add additional accounts as you purchase more real estate or find additional items that require more granularity. As a note, you will want to keep your expenses in the miscellaneous area to a minimum.

(WARNING: This is a long table below, but it is useful content.)

Account NumberAccount DescriptionTypeUse
1100Checking AccountBankRecord all deposits or checks in this account
1200Savings AccountBankRecording any savings deposits or withdrawals in this account
1300EscrowBankSome investors like to their insurance and taxes to be paid out of escrow which means the money is collected in advance and then paid out each month
1400Rents ReceivableAccounts ReceivableThese are unpaid or unapplied rents
1500DwellingFixed AssetSeparate out the value of the dwelling and the land. Each property will have a separate account
1600LandFixed AssetSeparate out the value of the property and the land. Each land asset will have a separate account
1700Property ImprovementsFixed AssetRecord all property improvements that are greater than $2500. Each property will have its own account to attribute any improvements to
1800Accumulated DepreciatedFixed AssetEach property (not land) will have depreciation each year that needs to be recorded
2500Credit CardsCredit CardAll credit card transactions are recorded here
2600Real Estate MortgagesLong Term LiabilityEach property will have its own account to record the mortgage
3000Owner’s EquityEquityAny equity put into the business should be account for here
4100Rental IncomeIncomeEach property will have a separate account where the income is noted
4200Other Rental IncomeIncomeEach property will have a separate account where the other income is noted. This might include pet rent, appliance rents, garage rent, etc. Split out to the degree you want to be able to analyze your income from these different income streams
4300Other IncomeIncomeYou can include separate accounts for items such as interest earned
6000Marketing ExpenseExpenseInclude additional accounts for items like dues and subscriptions, or advertising
6100Professional FeesExpenseInclude separate accounts for Legal, accounting, consulting, memberships, or inspections
7000ExpensesExpenseInclude separate accounts for each expense type. We have included expense types to help as a foundation. We have also included helpful notes about some of the different expenses
7100Homeowner’s Association (HOA)ExpenseMany neighborhoods (particularly those with condos) require owners to pay HOA fees
7200InsuranceExpenseInsurance can be paid in a couple of ways:
- Directly out of the owner’s account
- Property owners frequently work with mortgage companies and have their insurance escrowed. Each month the portion of the mortgage payment that is associated with insurance, should be allocated to the property
7300TaxesExpenseTaxes can be paid a couple of ways:
- Directly out of the owner’s account
- Property owners frequently work with mortgage companies and have their taxes escrowed. Each month the portion of the mortgage payment that is associated with taxes, should be allocated to the property
7400License and PermitsExpenseCities frequently require owners to register their rentals
7500UtilitiesExpenseIncludes water, electricity, and gas
7600Mortgage Interest PaymentsExpenseEach month a portion of the mortgage payment is associated with mortgage interest payments. That needs to be reflected here for the associated property
7700Management FeesExpenseIf you use a property management company to help with management, the fee will be recorded here
7800Cleaning & MaintenanceExpenseWhen a tenant moves out there are associated cleaning and maintenance activities
7900MaterialsExpenseThis category is to reflect the purchase of lumber and other materials for the upkeep of a property
8000RepairsExpenseThis is the labor recorded to make the actual repair
8100Landscaping & UpkeepExpenseCare of lawns, snow removal, and other landscaping activities belong in this category
8200EducationExpenseMoney spent on books, audiobooks, courses or other training materials to educate you on real estate can be captured here
8300Travel & ParkingExpenseCapture all costs associated with out of town travel to look at real estate or attend conferences. Parking fees are also captured here
8400Meals & EntertainmentExpenseBusiness meals, entertaining potential investors, business meetings, etc.
8500Office SuppliesExpenseAny supplies purchased to help run your business - paper, folders, pens, paper clips, etc.
8600Finance ChargesExpenseInterest charges from the bank or credit cards are recorded here
8700Computer & Internet ExpenseExpenseEquipment purchased to run your real estate business are collected here
8800MiscellaneousExpenseCatch-all for additional expenses that can’t be categorized. This should be used sparingly and if you see similar expense showing up here you
9000Other ExpensesExpenseAnother catch all category you may want to allocate certain expenses to
9100Bank FeesExpenseCould include overdraft fees, fees for checks, etc.

(Congratulations! You made it! We love to hear your comments, so please leave one at the end of the blog.)

How to Track Separate Properties

We talked earlier about leaving room for growth. Give yourself room on your numbering so additional properties can be easily added. You want to be able to clearly see how the assets are performing individually on the asset, liability and expense side.

Here is an example numbering schema for the dwelling account that has multiple fixed assets.

1400 DwellingFixed Asset$1,310,000
- 1401 - Property 1234 Holiday DriveFixed Asset$110,000
- 1402 - Property 4567 Raccoon RidgeFixed Asset$550,000
- 1403 - Property 7890 Lincoln WayFixed Asset$650,000

The same model is used for expenses:

7700 Management FeesExpense$12,020
- 7701 - 1234 Holiday DriveExpense$1,200
- 7702 - 4567 Raccoon RidgeExpense$4,320
- 7703 - 7890 Lincoln WayExpense$6,500

When to Use Classes

Separate expenses by property with the use of classes. Not every account will you want to break out the expenses with an individual line item. The use of classes gives you the ability to split out the expenses so that you can see by property how they are each performing. This will be useful in the profit and loss detail report.


Thanks for sticking with us!
Sign Up to receive product updates.

We hate spam too. You can unsubscribe at anytime.





Special Offer from our Sponsored Link Above

Closing

The goal with any chart of accounts is to allow you to prepare good reports in order to manage your business effectively. This means you want consistency over time to easily compare property to property and year over year. Which means, expenses must be categorized the same way each month.

Periodically monitor your chart of accounts to make sure they continue to make sense. This could mean expanding your accounts in certain areas so you have clarity on some expenses. Or, just as importantly, it could mean shrinking your accounts. If an account is not used much, you should consider rolling it into another. However, if there is a valid reason for keeping it separate, then do so. Either way, it is necessary to actively manage your chart of accounts.

Finally, good business management starts with good, clean accounting. The chart of accounts is the place to begin. Your accountant and your banker will both appreciate your organization.

Jeri

Are you looking for a simple way to slice and dice your real estate data?
We can show you how.

Request a Demo
 
What else do you want to know about?
 
Stratafolio Thank you for your visit. 
Follow me

Jeri Frank

Founder and CEO of STRATAFOLIO, real estate investor, cyclist, cat lover.
Follow me

Also published on Medium.

Summary
Setting up a Chart of Accounts for your Real Estate Management Company
Article Name
Setting up a Chart of Accounts for your Real Estate Management Company
Description
Setting up your chart of accounts for your real estate business is an important early step for successfully managing your business.
Author
Publisher Name
STRATAFOLIO
Publisher Logo

16 thoughts on “Setting up a Chart of Accounts for your Real Estate Management Company

  1. I found the video and blog very informative. We are shifting from spreadsheets to QB on-line. We have 7 properties that I have set up as classes & would like to know the best way to track the Property Improvements as Fixed Assets.

    1. Hi Kevin – We are so glad you found the video and blog helpful! We use QuickBooks Online (converted from the desktop version) and are very happy with it. We find it really easy to navigate. Nice job on setting up the classes. We set up a separate Fixed Asset account called Property Improvements and then assign each property as a sub-account under Property Improvements. Then we have an ongoing record of true property improvements (roof, driveway, HVAC…whatever it would be). We hope that helps a bit and thanks for the inquiry! Great future video/blog! Take care – Jeri

  2. Thanks for the quick read for a sample chart of accounts. One question – I see the depreciation account (for improvements), but what about the opposite account for appreciation (of the land)? My objective with this is to get a better overall view of net worth by looking at the chart of accounts instead of needing to create a separate spreadsheet for that … are there other factors I’m missing that would make this idea not very useful?

    1. Glad we could help! We feel your pain and have looked at this very question ourselves. Unfortunately, we don’t know of any great way to record your appreciation without messing up other aspects of your balance sheet. As much as it really pains me to say, for now, the spreadsheet is your best tool. This is the kind of information, though, the helps us improve our product development for STRATAFOLIO. Thank you for sharing! – Jeri

  3. Hi Jeri, The information you have provided is very clear and easy to implement. Thank you. I am especially grateful for the information on setting up the Chart of Accounts for Rental Properties, including the article on setting up a Bank account for Escrow deposits and payments for insurance and/or property taxes.

    Did I observe that you made a statement in setting up the Fixed Asset accounts that you “split out for Buildings and Dwellings?” Did you mean to say “split out for Land And Buildings/Dwellings?” I think I see that the actual Chart of Accounts shows a Land Fixed Asset and a Buildings/Dwellings Fixed Asset. And then sub accounts for each actual building.

  4. Hello Jeri, thank you very much for such an educational video. It was very well put together. I have one question, I am using the QB 2018 Desktop Pro, and when I tried to import the IIF it gave me an error and I was only able to get only 11 imports. Also gave me an error saying that there are duplicates files. I am downloading the correct file? Thank you very much for your help. Gustavo

    1. Hi Gustavo – Very happy you enjoyed the video and found it of value! I would suggest opening the IIF file with Microsoft Excel and locate the duplicate files and remove them and then try importing again. Good luck! – Jeri

  5. This was very informative! Do you setup a separate accounts for each properties security deposit as a other liability account?

    1. Hi Chris- Thanks for reaching out. Yes, that is the recommended method that each property has its own liability account for the security deposit. Some states will require you to collect and then share the interest earned with the tenant. Having comingled funds makes that quite messy. It is best practice and cleanest to keep them each separately. Good luck! Jeri

  6. Thanks for the video and well written articles!

    Am I correct that you are recommending that we use sub-accounts for the balance sheet and income statement, and then use classes on top of that? As opposed to using sub-accounts for the balance sheet only, and classes for the income statement.

    1. Hi Brian, glad you enjoy them! We use both sub-accounts and classes because it allows us to see more detail (and where an issue may be) when we look at the Profit & Loss and other reports. This is personal preference. You could get by with just classes for many of the accounts (excluding your liabilities and escrow). Take care! Jeri

  7. Hi, I’m wondering. For a property management company, can these properties be classed as assets since we don’t own these properties but receive income from management and letting fees and service charge from tenants for repairs?

    1. Hello! You probably would not put them in assets because you do not own them. I would check with your account to help you set this up properly from the beginning. Good luck! Jeri

    1. Hi Marshall! Thank you for the question! In your chart of accounts, set up a new account and select the account type of equity. For the Detail Type, you can select either Owner’s Equity or Partner’s Equity. You can then label each partner in your company as you name your account (ex. John Doe’s Equity). Good luck! Jeri

Have something to share? We would love to hear from you!

This site uses Akismet to reduce spam. Learn how your comment data is processed.