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I said I'd fix my uncle's books for free. Eleven weeks.

My uncle has four houses he bought between 2008 and 2014, all in one small city, all rented long term. He's not sloppy about money. He's just been doing it the same way since the first house and the way is a manila envelope per year.

I offered to put it into software for him because I'm learning this and wanted the practice. I thought it'd be a weekend.

Week one I found out that every tenant payment for four years had gone in as one line called income, which meant security deposits were sitting in there as if they were rent. That's money he holds and owes back, so it shouldn't be income at all, and it made his gross look bigger than it was every time a tenant moved in.

Week three I found a $9,800 payment in 2019 marked "repair." It was a full roof. Whether that's an expense in one year or gets depreciated over a long schedule is exactly the kind of thing that needs a CPA rather than me and a search bar, and I told him so and stopped touching it.

Week six was the insurance. One policy covering three of the houses, one payment, no split. So none of those three houses had a true expense number. I split it by insured value because that's what the declarations page gave me, and I wrote a note in the file saying that's what I did and why.

Week eleven I gave him a report per house. The house he's always described as his best one is his second worst. The difference is a sewer thing in 2021 he'd stopped thinking about.

He said thank you and put the envelopes back in the closet anyway.

9 replies

The insurance allocation note is the professional part of this. Anybody can pick a method. Writing down which method you picked so the next person can follow it is what makes books usable by somebody other than you.

Four houses in a small city bought in that window, he's probably fine no matter what the books say, which is maybe why he doesn't care. Doesn't make you wrong.

His best house being his second worst is the part I'd want to sit with. What we believe about our own properties comes from the story we tell about them, and one bad sewer year gets edited out.

Deposits landing in income is going to be the single most common error in this whole room, I'd bet money on it. It feels like income. It arrives like income.

We hold deposits for owners and the rules on where they sit and whether they earn interest vary by state, so we have different account setups by market. It's the one thing I won't let a new owner client talk me out of. @juniper if he ever does start caring, that's the first thing to fix.

Eleven weeks is also useful data about pricing. If four houses and four years of clean handwritten records took that long, cleanup work is not a cheap service and shouldn't be sold as one.

I've read three explanations of depreciation this month and I still can't tell you confidently whether a roof is one. Nice to see someone stop at the line instead of guessing.