Investment property

1

I have been using Manager for my micro-business for about 4-5 years, thanks team :100: :clap:

I also have two investment properties, one is a residential property with an agent, the other is a commercial apartment with a managed body corporate.

I keep meticulous records on both properties, but to date I have only used a tax agent to do my personal income tax returns, however on auditing the last few years, I recently discovered that they seem to miss a lot of claimable expenses, like insurance and transaction fees (despite me providing them 100% in hardcopy).

Iā€™m now wanting to see if I can use Manager to input all my financial data related to my personal income and these properties (c/w depreciation) and prepare a report for the tax agent ( that is, if I cannot submit the tax return myself - which would be my ultimate goal).

Can I get some tips/assistance/template on how to best go about setting up Manager to do this.

2

You can create a division for each rental property, create the relevant expense accounts applicable to the rental properties under the Chart of Accounts then enter the transactions, depreciation, loan interest, insurance, management fees, repairs, etc and assign a division to each transaction.

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3

No I will keep there properties in separate instances, as there is different structure between residential and commercial, separate mortgages, etc.

The initial bits Iā€™m trying to get my head around are like:
Income is not a Sales Invoice, but Rent less agent fees
Expenditure is not PO to vendor, but say mortgage payments, body corp fees, etc.
Bank is ā€¦ Iā€™m not sure? a mortgage?
Should the initial bank loan be a journal entry?
Struggling to find any guides on this both in Manager guides and in the wild.

Iā€™m OK with COA and structure for a conventional business, but never done one for investment property

4

Use a receipt with multiple lines. The agent fee can be a negative amount. Allocate one line to rental income, another to agent fee expenses.

Use payments

The bank is a bank account. A mortgage would be entered as a liability account.

No, because journal entries cannot be used for money moving into the business. Use a receipt, posted to the loan liability account.

There are no Guides, because these are completely ordinary accounting entries. You are receiving rent and paying money for expenses, obtaining loans and paying them off. Your equity account structure will depend on the form of legal organization of the business.

Accounting is accounting. The one thing you did not ask about was treating the property as a fixed assetā€”you will do that, and make depreciation entries. As you have described these activities, the properties are not inventory items, because they are not being held for sale or production. They are fixed assets that are used to produce incomeā€”rent.

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5

Thanks @Tut , this is most helpful (Iā€™m finding fragments on this here and there, but mostly US based).
I realise now that I need to set it as a liability somehow ā€¦

For the initial setup, there are two bank loans, each from separate banks, together they are for the one property, letā€™s say total property loan split between Bank A & Bank B
Lets assume: Property purchase is $450k, Bank A 250k & Bank B is 200k
For Bank A lets say, the loan opening statement shows:
- an opening balance of $0
- followed by a dispersal from Account ABC123 amount (credit) of $260k
- followed by a dispersal to Account ABC123 amount (debit) of $260k
- a series of about 20 debit transactions (legal fees, city stamp duty, loan application fee, land titles, the property owner, etc.) with a combined total of $260k
- my personal deposit amount (debit) $10k
- leaving the loan establishment balance of $250k (DR)

From there it goes no to interest only for a few years, then interest + principle after that.

I assume I will need some setup in Chart of Accounts, then entry where/how?

6

Should I setup a liability account for each bank?
Should it be ā€œInvestment Activitiesā€?

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7

Yes, you will need to set up your chart of accounts. Talk to your accountant for advice on how to best support your local reporting requirements. Based on your description, you will mostly be entering receipts and payments. The only reason I could see for purchase invoices is if you buy services to support the properties on credit. You have not shown any need for sales invoices yet.

That is up to you. For visibility, I would. However, you might use one custom control account with special accounts for each loan. That decision would depend on whether the business will invest in other properties and what level of visibility you want on your balance sheet.

Probably. But this is something to check with your accountant.

8

Thanks Again, unfortunately I donā€™t have easy (or affordable) access to an accountant here (a bit remote area), plus Iā€™m doing this to check on past work by an accountant, where I believe they have left out a lot of claimable expenses, despite me giving them 100% documents meticulously filed.

To be clear this is not a business per-se (not a registered business and no bank account and no trading), but rather a personal property investment, for the purpose of negative gearing against PAYG.

All Iā€™m wanting to do is to be able to show the mortgage from initial draw-down to present, any associated costs (rates, insurance, maintenance, agent fees, etc), mortgage payments (interest & principle & bank fees) and rent income.

The only other consideration is the mortgage is split between two separate banks.

Iā€™ve spent hours/days going over all kinds of tutorials & guides, none Iā€™ve found show how this is done with any degree of clarity.

9

All those issues are outside the scope of this forum. They have nothing to do with how to use Manager. It sounds like you definitely need a different accountant. The cost of a good one, in my experience, always repays itself.

10

That is one answer, however many bits and pieces of this topic are covered in part, in the Manager guides already, however the relevant guides are not complied and/or comprehensive enough to follow this setup step by step.

This may highlight the need for a new guide or improvement to existing ones.

Fixes assets Purchase fixed assets | Manager
Chart of Accounts - long term liabilities Build a chart of accounts | Manager
Forum discussion 2018 Purchasing Fixed Property on bank loan

11

No Guide can cover the exact circumstances of every business situation. Honestly, what you have described is fairly straightforward. But the program is a tool. Using it requires understanding of what the tool is meant to accomplish. Neither the Guides nor the forum are intended to furnish that. That is why qualified accounting advice can be so important if you are not expert in the subject.

12

Agree the software is just a tool, same goes for all software.

Agree ā€œwhat you have described is fairly straightforwardā€, in fact many of Manager users will also have a similar investment property at some point in their lives ā€¦ Iā€™d love to get the straight forward assistance if available.

Of curse you cannot create guides for every conceivable business type/scenario, but surely how to enter/capture transactions related to an investment asset & mortgage loan in Manager has a fair amount of generic commonality about it for most other scenarios with assets paid for with a bank loan?

I know Iā€™m not an accountant (yet Iā€™m now able to do all my own accounts for my micro-business), neither are many of the other small & micro business owners who use Manager or itā€™s many competitor softwareā€™s, this shouldnā€™t be a reason to withhold or be minimalist in explaining the intended correct method of setting up this type of transaction in Manager tool/software.

13

The fact is, there are many ways to set up a business arrangement like this that would be correct. The details would depend on local law, form of business legal organization, local tax filing requirements (and forms), and preferences of both the owner and any accountant involved. Please believe I mean no disrespect, but if you cannot figure this out from available information in the Guides, you probably should not be trying to do your own accounting. Bookkeeping after setup is one thing, designing the whole environment is another.

Not everyone who can flip a switch is necessarily qualified to use a powerful electric tool on a home woodworking project. Likewise, not everyone who can turn a steering wheel should jump into the driverā€™s seat of a multi-trailer articulated lorry. The more detail the developer publishes, the more it begins to look like heā€™s saying, ā€œThis is everything you need to know to account for your property investment business.ā€ And that can never be true.

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14

As Iā€™ve said in the past, maybe there needs to be two separate forums, one just for dev & bug fixes, the other just for community support, as do many other softwareā€™s.

There is a major deficiency of social media support groups and/or YouTube instructional channels for Manager, unlike all itā€™s established competitors.

This Manager Forum seems to be the only place to find any help, however so far more effort has been put into ā€˜notā€™ answering a legitimate question than in trying to answering the actual question, on a topic related to how to use this software to do a somewhat generic task it has been designed to do.

It seems counterintuitive to say hereā€™s an accounting software so you can do your accounts, but if you run into difficulties and have a question on how to use it, you should go ask an accountant to solve it, only they will be using their software ā€¦ and let me explain more clearly my lived experience with this, and you may better understand where Iā€™m coming from on this topic ā€¦ and maybe you might rethink how Manager solves its users problems going forward.

Firstly 2004-2016 I was a P&L responsible country manager for a multinational, whilst the group accountants overseas prepared the accounts (SAP), I would still need to check them, and present the accounts to group management/board and be at any financial audits.

In 2011 I bought my 1st investment property. Just to do my PAYG tax return + 1 investment property I used a local chartered accountant (40 min drive), I provided all hardcopy, they use a clerk and their own software and messed up the tax return, this happened three years in a row (cost $1.5k; $2.5k; $5k)

In 2015 I bought a 2nd investment property and switched to a different chartered accountant (1 hr drive), similarly we provided them with hardcopy, they use a clerk with their own software just for personal PAYG tax return with now 2 investment properties, (starting cost $1k, but now over $5k).

in 2016 my employer exited the country, leaving me redundant and unable to relocate, so I started a home based micro business, for this I used the same accountant, and again they use a clerk with their own software to do the business BAS & tax return, (cost $5k-$10k/annum), and again they made many mistakes, which I only discovered much later.
NOTE: I have no access to their software to be able to check any of their entries, just the emailed PDF reports they generate.

Frustrated with this is what led me to do extensive research of a lot of accounting softwareā€™s and eventually I found Manager, and Iā€™ve dedicated a lot of time to learn and become more proficient and independent.

Along the way a local gov initiative grant offered 4 hours with a financial professional, I was given a bookkeeper, who knew much less than I did and was very impressed with both my accounting and Manager software, having nothing to offer me to guide or improve, a total waste of time (I think he came away with all the benefits, not me).

I then decided to approach the three remaining accounting firms with a personal budget limit of $5k to sit down with their accountants on an agreed hourly rate, to have them go over my accounts in Manager, to check if Iā€™ve setup everything correctly, however after the initial free 1/2hr consultation to understand the scope, they all refused to help !!!
They would only offer to take my hard copy, use a clerk with their own software, give me the report/results and charge like wounded bulls, and have me come back next year and the next ā€¦ I felt utterly humiliated and demoralised.

The next City CBD with decent accountants is literally 4,000km from here.

I am utterly frustrated with overcharging, underperforming accountants here, and from personal experience, they are not all experts.

Thankfully with Manager help, Iā€™ve now became fully independent for my micro-business.

However my micro-business doesnā€™t have either of a loan (mortgage) or a physical asset (property), so some new skills need to be learned !!!

Circling back, all I want to know is (for the purposes of checking my accountant has not made any more mistakes), when using Manager software, if a user purchases an investment property for negative gearing purposes, to reduce their taxable income (PAYG), and it is financed by two personal loans (mortgages) from different banks, what is the preferred structure for:

  • Chart of Accounts ( generic setup to record the mortgages as liabilities and the property as an asset)
  • Where & how to create the initial mortgage transaction when the loan is established.
  • Where & how to create the initial property as an asset.
  • I think the ongoing recording of monthly loan payments & rent receipts and general expenses and the relevant CoA for these is not any major issue, but explanation can be included if there are any nuances worth sharing.

I may be wrong, but would this show a growing equity as the loan is serviced and the property value increases?

If this is too much to ask here, please point me in the right direction to get help.
Iā€™m happy to do a zoom or other with someone willing to help out.

With thanks

P.S. the main advice I get from these local accountants is to ditch Manager and to use one of the accounting software they are using !!!

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15

The key to keeping your accountant fees down is to use a bookkeeper. Manager enables me to be that bookkeeper and at the end of the year I just provide the accountant with the Manager file.
I have 2 Manager businesses - 1 is for the company (used for sales invoices, wages, expenses) the other is a Personal Business.
This Personal business includes my investment properties - so in the COA there is a separate Income section for the Rent received, and a separate expenses section for the Property expenses (Council Rates, Landlords insurance, RE agent fees, Mortgage Interest payments, Repairs, Strata fees, Water rates etc).
When I pay the mortgage I have 2 lines in the payment - one is for the Mortgage Principal amount for the particular loan (the liability), the other is for the expense of the interest portion of that payment.
So just set up your COA to include the Fixed Asset (the property), The Mortgage (the loan from your bank) and the expenses.
Sorry for this simplistic reply - I donā€™t record depreciation and other complicated stuff - thats what you pay an accountant to do!

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16

I agree with @clive on the simplicity of accounting for investment properties. Assuming @OCPL is based in Australia, the commercial property may be subject to GST but the residential property is input taxed (GST is not charged and GST credits are not claimed). Both investment properties can be included in the same Manager file without any issues.

In relation to the depreciation and capital works expenditure, it is a very simple journal entry for any accountant if it is based on a depreciation schedule prepared by a quantity surveyor. Additional works need to be broken down between repairs that are deductible and renovations that are either depreciable based on the effective life of the asset or capital works normally deductible over 40 years.

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17

Thanks guys, Iā€™ve had some coffee now :slight_smile: felling a bit less stressed, @clive , I am intending to still use an accountant for the final personal income tax & both investment properties, however they have been rather tardy and having discovered that they missing some obvious stuff, I am wanting to do something similar to what you have done, in having this modelled in manager to make sure everything is captured properly, to validate the accountants work, both past and present.

@tony yes Iā€™m outside Darwin, NT, Aus, so Iā€™m rather remote, limited local choices, and very far to next capital city.
Yes one property has GST implications, hence I feel it will be easier to model them in separate instances, as this is what the accountant does too.
Again you are right with needing to identifying what is a repair and a renovation, so I will need to capture these properly with account codes ā€¦ Iā€™ve got one other issue that is going to need questions asked, the replacement of cladding for fire-proof type as per gov regulation ā€¦ messy.

The help I need is basically a sample CoA for capturing the typical transactions and how to enter the initial ā€˜mortgageā€™ liability and ā€˜propertyā€™ asset ā€¦ this may sound simple, but for whatever reason my brain has stalled on this bit.

By create in CoA, I mean is this correct? and is investing activities correct option?

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By enter the mortgage as a liability, I mean how/where to enter this data?

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By Property as an asset, I mean do I create as an investment?
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and how do these link? or not?

18

Cash Flow Statement categories are not relevant to you because you will not require that report for your purposes.

Mortgage can be set up as a bank account, see - Set up a bank or cash account | Manager

I donā€™t think you need the Investment module for the asset. I would just create an asset under the C of A.

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19

This is a good site to get a good understanding of basic accounting. This will help you decide how to structure your chart of accounts

There are no recommendations for charts of accounts in a lot of jurisdictions and each business is free to choose the accounts that work best for them

Accountants like you to use the same software as they do because that makes it easier and more profitable for them not because it is the best solution for you

As others have said here, setup your properties as fixed assets - I would suggest using one business for both properties but if you feel it is simpler to use two separate ones, then do so. However if both properties use the same bank account, you will not be able to use the Bank Reconciliation feature nor get an overview of your businesses but that is your decision

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Thanks @Joe91 really appreciated, knowledge is a life long quest for us all.