How to enter initial downpay for purchase of a building?


R

Ralph

I'm using Q06 Home version.

I have what must be a very simple question, but I am stumped. I
searched the Help Info, but could not find the answer.

I recently bought an investment building. The purchase price was
100K. I made a downpayment of 10K. I have set up linked accounts:
one for the loan associated with the building. The initial balance of
the loan is 90K

The other new account is an asset account for the building. The
starting asset value is 100K (the mkt value of the purchase).

My question is: how do I account for the 10K down pay in Quicken?
It's not part of the loan. Is it an expense? but it's going toward
buying part of the asset. Is it an investment? Is it a transfer?

Thank you in advance.
 
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S

Scott Lindner

I recently bought an investment building. The purchase price was
100K. I made a downpayment of 10K. I have set up linked accounts:
one for the loan associated with the building. The initial balance of
the loan is 90K

The other new account is an asset account for the building. The
starting asset value is 100K (the mkt value of the purchase).

My question is: how do I account for the 10K down pay in Quicken?
It's not part of the loan. Is it an expense? but it's going toward
buying part of the asset. Is it an investment? Is it a transfer?
That one took me a bit to figure out when we first bought our house as well.
What's confusing you is the downpayment is not a cost. There is no
transaction associated with it as a cost. So it shows up as a transfer. I
handle this using a one time account I created to capture the details of
escrow. The downpayment goes into escrow, and the full purchase price of
the home is essentially a transfer (a payment) from the loan account. If
you don't want an escrow account in Quicken then I'd just show it as a
transfer to the loan account. One big payment.

I hope this helps.

Cheers,
Scott
 
R

R. C. White

Hi, Ralph.

Scott has the right answer. We discuss this a couple of times a year, but
not recently. I'll try to summarize it (but you all know how wordy I am),
and you can search the archives for more thorough discussions.

To record a purchase or sale of real estate (whether an investment, a
business property or a residence), use the closing statement as your guide
and enter everything on it. The statement may be the HUD-1 form or some
other document from the lender or attorney. The buyer and seller should
each receive such a statement; they will be almost mirror images of each
other, with the "sale price" on one and the "purchase price" on the other.
Record the entire transaction as of the closing date, the day that you
actually become the owner of the property. Until the closing, everything is
tentative and subject to change.

For the buyer, one side of the statement should show the purchase price,
plus costs of acquiring the property, perhaps some operating expenses paid
from the escrow, and any cash refund if too much was paid into escrow. On
the other side will be the loan assumed, plus cash paid in by the buyer,
both as the down payment and any additional amounts for closing costs.

When you write the check for the down payment, create a "limbo" account, if
you don't already have one. Accountants would call this account something
like "Suspense" or "Deposits"; you can call it anything that makes sense to
you. It probably should be an Asset Account, but a Liability Account would
work just as well. Whatever you call it, the balance should be zero after
the closing entry. In addition to the original down payment, put any
further payments into this account, too.

When you record the closing statement, make it a Split entry. The purchase
price and other costs of acquisition should go into the Real Property
Account (by whatever name); any property taxes, insurance premiums or other
expenses paid through escrow should go to the proper Expense Categories.
The loan amount goes to establish that Liability Account. And the down
payment is credited back to that limbo account, leaving it with a zero
balance.

When the dust settles, you should have the total cost of your new property
in the asset account, the loan balance in the liability account, expenses in
their categories - and zero in your down payment account.

I've not actually done this in Quicken, Ralph. I bought this home in 1989,
before I started using Quicken. And I retired soon after that, so I haven't
had to handle transactions for clients, either, so I've never used the loan
wizard.

RC
--
R. C. White, CPA
San Marcos, TX
(Retired. No longer licensed to practice public accounting.)
(e-mail address removed)
Microsoft Windows MVP
(Currently running Vista Ultimate x64)
 
S

Scott Lindner

I'll try to summarize it (but you all know how wordy I am),

Thankfully that was just a summary! :p

Cheers,
Scott
 
S

Scott Lindner

I've not actually done this in Quicken, Ralph. I bought this home in
1989, before I started using Quicken. And I retired soon after that, so I
haven't had to handle transactions for clients, either, so I've never used
the loan wizard.
I've done this three times in Quicken already. When we bought our first
house, sold our first house, and bought our second house. I created a new
escrow account for each time we bought/sold, and then hid them when it was
all done. The downpayment never really shows up. The closest you come to
the downpayment is the two to three deposits we made into the escrow
account. What's cool is that after you enter the details from the closing
statement out of escrow the equity in the asset account for the home is
exactly the downpayment. The benefit I like with doing it this way is that
it makes it a heck of a lot easier to track the various categories of the
costs that came out of escrow. Such as partial tax payments, closing costs,
etc. This really helps when preparing taxes at the end of the year.

Cheers,
Scott
 
R

Ralph

Scott & RC: Thank you both very much for your very helpful
assistance!!
 
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