Back to Basics Bookkeeping For Real Estate Investors and Business Owners

www.HasslefreeCashflowInvesting.com

Back to Basics Bookkeeping
For Real Estate Investors

David Campbell Renee Daggett
Hassle-Free Cashflow Investing Enrolled Agent / QB Pro
David@HasslefreeCashflowInvesting.com Renee@AdminBooks.com
(866) 931-9149 Ext 1 (408) 782-9640

David Campbell - Founder
Hassle-Free Cashflow Investing

Former high school band director
Self-made multi-millionaire
Real Estate investor / developer / broker
Financial 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.

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.


Proﬁt
ROI =
Money + Time + Hassle

More proﬁt with less invested


Today’s VIPs
(very important points)
• Bookkeeping Vocabulary
• Bookkeeping Principals
• Bookkeeping Strategies


RECAP: Bookkeeping Strategies
Type of
What you use it for How to do it Who does it?
Accounting

Essential for daily living Excel and Bank You and your
Cashﬂow
(budget) Reconciliation spouse

Very important for short and Excel or You and your
Proﬁt / Loss
mid term planning Quickbooks bookkeeper

Helpful for long term Excel or You and your
Net Worth
planning and bankability Quickbooks bookkeeper

You and your
Tax Very important for mid and
Quickbooks bookkeeper and
Accounting long term tax planning
tax advisor


Balance Sheet
+ Equity Financial Accounting
+ Assets Basis

- Liabilities
GAAP
Net Worth Mark to Market

THREE COMPONENTS = NET WORTH

ASSETS
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

LIABILITIES
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

EQUITY

Contributions Into a Company $50,000

Distributions Out of a Company -$20,000

Accumulated Proﬁt / Loss
$75,000
(retained earnings)

Assets = Liabilities + Equity

Liabilities
Assets =
Equities

NET WORTH

Equity $75,000
Assets $890,000
Liabilities -$558,000
NET WORTH $407,000

Who cares about this?
Your banker
Your creditors
Estate taxes
Personal vanity
Accredited Investor Status
a type of “savings” for future withdrawal


NET WORTH vs
CASHFLOW


Profit / Loss Statement
Income Statement

Renee’s Secret Formula

Income Income
-Expenses -Profit
Profit or (Loss) Expenses

Proﬁt / Loss (P&L) INCOME
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) EXPENSES
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


Deductible Expenses
Earn then Spend
$1 buying power = $1 earnings

Non-Deductible Expenses
Earn then Pay Tax then Spend
$1 buying power = $1.25 earnings

Deductible Expenses
Earn then Spend
$1 buying power requires $1 of earnings

SHIFT EXPENSES

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

TAX DEDUCTIBLE 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

Profit or Loss (P&L)
Income $88,050
Expenses -$51,100
Profit / Loss (INCOME) $36,950

Who cares about this?
Your banker
Your creditors
IRS
YOU!!! SUPER IMPORTANT

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


Not every check you deposit is income
Not 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 Received
Return of security deposits held by YOU
Prepaid items / Overpayments / Refunds


Not every check you write is an expense
Not all negative cashﬂow is loss
Issuance of Loans
Owner Draws
Investment Principal into 3rd party companies
Security deposits paid by YOU
Prepaid items / Overpayments
Deposits into Impound / Escrow Accounts
Payments to Credit Cards
Re-Payment of Loan Principal


Multiple Income Statements
Multiple Balance Sheets

reconciliation trust or
impound
distributions account

K-1
IRA dividends

S-Corp
C-Corp LLC
Partnership


Cashﬂow Statement

Starting Balance
+ Receivables
-Payables
Cashﬂow (positive or negative)


Depreciation
Equipment Cost
- Non-Depreciable Cost
Depreciable Basis

Depreciable Basis
Depreciation =
Useful Life


Depreciation Schedule
3 year - software
5 year - computer
7 year - furniture
15 year - loan points / property improvements
27.5 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.
Cashflow
Problem

“Phantom Loss”
Tax deductions for expenses you didn’t really pay
Depreciation
Cashflow Auto expenses (mileage)
Bonus Home office (potential)

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

Year 0 tax basis $300,000


GAIN vs PROFIT

Proﬁt = sales price - acquisition price
Gain = 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


Depreciation Recapture
a tax based on your GAIN not
your PROFIT
You 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
- Depreciation
Taxable Income

Income Tax
Taxable Income
x Tax Rate
Income Tax
- Tax Credits
- Tax Previously Paid
Tax Owed (or Refunded)


Q&A
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www.HassleFreeCashﬂowInvesting.com

Back to Basics Bookkeeping For Real Estate Investors and Business Owners

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