A year of payments later, the principal split on my two notes finally lines up

The part I want to sit with is the servicer statement matching. Did it match on the first try, or did you have to chase a difference? I ask because everyone posts the clean ending and skips the reconciliation that took four hours.

It matched because he took the schedule from the servicer rather than building his own. That is the whole trick and it's worth saying out loud. If you generate your own amortization table in a spreadsheet and the servicer rounds interest differently or applies payments on a different day count, you drift a few cents a month and by month eleven you're off enough to notice and not enough to find. @vellum used their table, so the books are just a mirror. Sensible.

$300 for the discount treatment is cheap. Reconstructing it later is not.

One number I'd want from you though. You said combined payments under $1,400. What is your interest portion annually, roughly? Because the whole reason to book the split properly is so you know your actual yield on cash paid, and I can't tell from the post whether the two notes together are throwing off $6k of interest or $11k. The bookkeeping is only useful if it answers that.

Check whether your servicer's statement and your note documents agree on how a partial payment gets applied. I've read servicing agreements that apply short payments to fees first, then interest, then principal, and I've read ones that hold the payment in suspense until the full amount arrives. Those two produce different books from identical cash. If both your borrowers have paid exactly on time for twelve months you haven't hit it yet. You will.

So the principal portion is money coming back to me that I already spent, and it just isn't new money? That's the part that clicked, and it took me two passes to see it.

@juniper yes, roughly. Think of it like lending a friend $10,000 and them paying you $200 a month plus interest. The $200 was always yours, it's coming home. The interest is the fee for the wait. Books have to tell those apart or every number downstream is wrong.

Fifteen minutes a month for two notes scales worse than you think. I run rentals rather than paper, but the shape is the same, at two properties I did my own entries in twenty minutes, at nine I was spending a Saturday and doing it badly. Not saying hire someone now. Saying know the number of notes where the recurring template stops being enough and decide in advance instead of in the middle of a bad month.

What software? You said "the books" three times and never named it.

Seconding @quill. I'm trying to price out my own setup and "a CPA, a servicer and unnamed books" is about $0 of useful budget information. What did the year actually cost you all in, software plus the $300 plus servicing fees?

The servicing fee is the bit I'd watch on notes this small. If you're paying $25 to $30 a month per note to a servicer and your interest is thin, the fee is eating a real slice of the yield, and it shows up in the books as an expense that has nothing to do with the borrower's performance. @vellum, is the fee coming out of the payment before it hits your account, or are you paying it separately? That changes how the deposit gets recorded.

I own nothing, so this is all new territory for me. The idea that a deposit can be two things at once is new to me and slightly alarming.

@rigging it's the same on a mortgage you pay, just looked at from the other side. Your payment splits into interest and principal too, you just never see it because the lender does the split for you.

The thing I'd push on: what happens if one of them stops paying in month fourteen? Your books are clean under a performing assumption. A borrower who goes three months late and then catches up with a lump sum is where the neat monthly template falls apart, because the lump has to be broken across three months of accrued interest and then principal, and your recurring entry won't do it for you. Do you know what you'd do?

Saving the amortization schedule as a PDF next to the books is the small thing I'm stealing. I keep everything in email and email is where documents go to disappear.

Small notes in cheap markets are exactly what I'm circling, so this is useful. @sable's question is the one I'd want answered before buying a third. Late is normal at low price points, and books built only for on-time payments break the first time reality shows up.