[shane1127]

I have just bought a property as an investment

The Purchase Price is 120,000.00 with a fixed selling price of 159,000.00
I am new to real estate purchasing and need to know how to record this transaction
The property will be rented out for two years with a mortgage payment due out of 750.00 per month and rental income of 995.00 per month.

Can you help me set up an entry to cover all my bases.

[codyman144]

I have just bought a property as an investment

The Purchase Price is 120,000.00 with a fixed selling price of 159,000.00
I am new to real estate purchasing and need to know how to record this transaction
The property will be rented out for two years with a mortage payment due out of 750.00 per month and rental income of 995.00 per month.

Can you help me set up an entry to cover all my bases.

Sure I can help…

So you bought the property for $120,000? What do you mean by Fixed Selling Price of $159,000? Well the amounts don’t really change the journal entries (J/E’s) so let’s not worry too much about them now…

Okay so let’s say you paid a total of $120,000 and 100,000 you financed (mortgage) and the other 20,000 you put as a down payment. The entry on the business would be:

Debt some kind of Building account, 120,000
Credit Cash, 20,000
Credit Notes Payable 100,000

Now is the note in your name for the businesses name? Also did the $20,000 come out of your pocket or the businesses account? If the note is in your name and this is a sole proprietorship it doesn’t really matter. It does matter if the cash came from your personal money because this would be treated as a capital contribution, for example books of the business would show:

Db Cash, 20,000
Cr Owners Equity, 20,000

Okay when you pay your mortgage you need to know the amount of principal and amount of interest, I will make some assumptions, so here is that J/E:

Db Notes Payable 600
Db Interest Expense 150
Cr Cash 750

When you get paid:

Db Cash 995
Cr Rental Revenue 995

Also you are going to have to deprecate this asset as it is a fixed asset. Need to decide on useful life, estimated salvage value (or value at end of useful life.)

Are you with me so far? Note many of the accounts above don’t have to have those names, those are just the ones I am using to explain this. Please get back to me with your follow up questions and answers to the questions I have asked and I will explain further.

[shane1127]

Thank you

This helped.
This is what I figured, but better to be sure.
I appreciate your assistance.

Sure I can help…

So you bought the property for $120,000? What do you mean by Fixed Selling Price of $159,000? Well the amounts don’t really change the journal entries (J/E’s) so let’s not worry too much about them now…

Okay so let’s say you paid a total of $120,000 and 100,000 you financed (mortgage) and the other 20,000 you put as a down payment. The entry on the business would be:

Debt some kind of Building account, 120,000
Credit Cash, 20,000
Credit Notes Payable 100,000

Now is the note in your name for the businesses name? Also did the $20,000 come out of your pocket or the businesses account? If the note is in your name and this is a sole proprietorship it doesn’t really matter. It does matter if the cash came from your personal money because this would be treated as a capital contribution, for example books of the business would show:

Db Cash, 20,000
Cr Owners Equity, 20,000

Okay when you pay your mortgage you need to know the amount of principal and amount of interest, I will make some assumptions, so here is that J/E:

Db Notes Payable 600
Db Interest Expense 150
Cr Cash 750

When you get paid:

Db Cash 995
Cr Rental Revenue 995

Also you are going to have to deprecate this asset as it is a fixed asset. Need to decide on useful life, estimated salvage value (or value at end of useful life.)

Are you with me so far? Note many of the accounts above don’t have to have those names, those are just the ones I am using to explain this. Please get back to me with your follow up questions and answers to the questions I have asked and I will explain further.