QUESTIONS For Mike:

  1. For validation, does a Sandwich Lease Option rent payment to the home owner go into rent expense account? 
  2. I did a double close yesterday (close on the buy and immediately sell the property 10 mins later).  The video for showing the SELLING side is broken and I’ve sent an email to Melissa to see if it can be fixed.  I collected Non-refundable Earnest Money from the buyer weeks before closing.  Which account does this earnest money collected, for a house I don’t yet own, get put into?  The money went straight to my bank account.  When I am doing the closing, I assume that will be offset in the deposit split against the account in which the funds were associated with. 
  3. I’ve given Earnest Money to a seller for a property that was NOT purchased.  Would this go to the PAID TO OWNERS (expense) account or is there a better account for this?  Right now it is showing in the ESCROW (asset) account and needs to be swept to an account for which I never purchased the property.

Thanks Mike,

Jared

 

ANSWERS from Mike:

  1. For validation, does a Sandwich Lease Option rent payment to the home owner go into rent expense account?Answer #1:  Number One Jared, I highly recommend to NEVER do “Sandwich Lease Options” – period. Take it out of investor toolbox. It blows my mind that you have so much confidence and creativity to structure such a deal, when it is so much easier to “Get The Deed” and have 100% control. NEVER try to sell something you do not own.I have seen many investors get burned doing “Sandwich Lease Options.”How?
    You do a Lease/Option with your Seller/homeowner.
    Then you find a Tenant Buyer and do a Lease/Option with them, and getting a decent wad of cash for your option fee. These buyers honestly believe they will become homeowners just as soon as they can get a loan to buy from you. Your buyers might install a new deck, a new roof, driveway, fence etc. Then you get a phone call your tenant buyer wants to close next Wednesday to purchase their home.
    – you contact your Seller and for whatever reason, they will not co-operate:
    – perhaps they are in a coma in the hospital
    – perhaps they had a change of heart
    – perhaps they have moved and you can not contact them..
    – it does not matter the reason, simply put, you can not get your seller to do their part.
    NOW, what do you tell your Tenant / Buyer?  pretty darn ugly, isn’t it?
    ALL of this mess is totally preventable by getting the deed before you try to sell the real estate.
    Another painful story is I have seen dirtbag investors do this to new investors. Brutal and scary.Your QuickBooks Answer – I would say all RENT payments are made to you using the RENT INCOME account for this property. Your Seller/Homeowner should not get your tenant’s rent payments



  2. I did a double close yesterday (close on the buy and immediately sell the property 10 mins later).  I collected Non-refundable Earnest Money from the buyer weeks before closing.  Which account does this earnest money collected, for a house I don’t yet own, get put into?ANSWER: This money gets deposited into your bank account using the “EARNEST MONEY” account for the entity selling the property. put the address in the memo or description field.The money went straight to my bank account.  When I am doing the closing, I assume that will be offset in the deposit split against the account in which the funds were associated with.ANSWER: When entering your closing/settlement statement, you will pull money from your EARNEST MONEY account – you will see this on your closing statement.


  3. I’ve given Earnest Money to a seller for a property that was NOT purchased.  Would this go to the PAID TO OWNERS (expense) account or is there a better account for this?  Right now it is showing in the ESCROW (asset) account and needs to be swept to an account for which I never purchased the property.ANSWER: Any time you submit a check as a good faith deposit or earnest money deposit, simply enter your payee, the dollar amount, and use the EARNEST MONEY account – in the description field, enter something like “Offer on 123 Main St.” and for the class, simply use the entity making the offer – if you have no entity, simply use your initials – JK and in my situation, it would be MB as the class making the offer. No need to create a new class for a property until AFTER you have closed on it.Great Questions Jared!
    SigMikeButler