Hello. Welcome back to another great episode. My name is Sarah Karakaian.

I'm Annette Grant, and together we are. Thanks for Visiting.

Let's start this episode like we do each and every week, and that is showcasing one of you our incredible listeners. Who is heading on over to strshare.com, sharing everything you can about your short-term rental so that we can celebrate you here on the podcast. Annette, who are we sharing this week?

This week we are sharing at @roscommon_cabin, and Ross is just ROS. And we'll have the link in the show notes there, but I want to take a minute and just talk about, there's a lot of AI going on, right? And I wanna celebrate this particular host and all of you host. I think this is gonna be really important moving forward, is collaborating with people, other humans in your town and small businesses and on their Instagram. They've done a wonderful job. They have a section that's "Our Town" and they also had a section kind of highlighting the upcoming season and they are highlighting other businesses, maybe parks, maybe, um, farms, uh, coffee shops, restaurants. And I think that's really important. And of course, they're, you know, some of them, they're tagging, making sure that they're sharing that. But really I think this is the time to dig in like they are doing and showcasing the other very human things to do. When you are spending time in your, the, the, your short term rental that you're renting out. So as, as so many things are getting automated in AI, I think it's really important for us as hosts to bring back that human element. So I wanna challenge you to post and tag. Other businesses because there are wonderful humans behind that businesses, those businesses. I challenge you to put your face out there more on your social media. I challenge you to ask your guests if you can use their quotes their faces, maybe do some user generated contact or yeah.

No content.

Contact. We gotta contact with humans. But I really just wanna share right now, let's be very thoughtful. I think the people getting back to that. Sarah and I have an internal hashtag here at Thanks for Visiting #stayhuman Bring that back because I, when I go to a lot of your Instagrams right now, it's just. Photo, photo, photo, photo, photo of interior, exterior. I wanna see the human behind, um, the property. I wanna see the host and I think that's gonna be very, very important moving forward. But well done, @roscommon_cabin, and we appreciate you using, um, you know, coming to STR share and letting us share your property.

Yeah. All right, everyone. Promise me right now let's make a little TFE packed all of us. You are gonna hang out with us for this episode with excitement and vigor 'cause we're gonna talk about bookkeeping. And Annette and I kept it as exciting as we can because numbers are exciting. And as we round into the last part of the year, now is the time when we start getting organized with our number. I mean, we should try to stay organized all year. But for a lot of us, the summer is a busy season, not just for our rentals, but for our lives.

Mm-hmm.

And it's time.

It's school time. Sarah, I know you like school time. Back to school time.

I love school time. Front row.

Valedictorian.

Yes.

I'm gonna get this in whenever I can. Sarah was valedictorian.

Yes, I was.

You know what, I was top 10, but that's very me and very you. I'm close but no cigar. 'Cause I like to hang out from time to time. And you're the top of the class.

I, yes. That does make me happy. Um, worked very hard for that, bookkeeping. We hear it from hosts so often that maybe you. You know, you have a bookkeeper and maybe you meet with them once a month, but you don't really look at what those numbers are telling you or what they're doing. Maybe you have a spreadsheet, maybe you have books, but you don't really know if you're categorizing 'em.

Or maybe your partner does them and you just like, and

you don't know what's going on.

You just throw your hands up and go, I don't know. My partner does it. This the, this is your stop the buck, like the dollar bills buck. Stop now. You need to know and be very informed on. All of the numbers in your property.

And it's not hard. It's not hard.

There's there, you know what, there, what is hard is ignoring it.

Yes.

Because then that builds up and, and that's not fun when you have to face it.

Correct. Yes. And we talk about this with Adam, but let's say you haven't been so good in the past with your numbers and keeping them organized. Okay, fine.

That's the past. We don't live in the past.

But today and moving forward, you could declare that you are going to have a meeting with yourself. Maybe it's every Sunday morning for me, it's every Saturday morning. Maybe you're more of a night owl. When are you gonna meet with yourself to make sure that your books are in order? Email that your CPA or your accountant and ask them, can you check my book? How does my chart of accounts look?

And maybe you have to make that investment. This is the other reckoning you need to have. If you've been saying you're gonna do it, you're gonna do it, you're gonna do it, and you haven't done it. It's time to hire somebody to help you do it, and at least hold you accountable for a while until you can start doing it yourself. Because I have made that mistake before of, oh, I'm gonna do it. I'm gonna do it. I'm capable. And it got way too far behind.

Of course, you're capable.

Yeah. So.

You know, that's the thing is like people feel like they're incapable because they keep putting it off and that's not the case.

Because that's fine.

I needed the, I needed the jumpstart. I hired someone. I was like, okay, great. Got me Clarity, had to partner.

And there are people who love to organize numbers.

And we're gonna talk to one of them today.

Yes. So we're gonna talk to someone today who has made it his mission. He's focused his entire professional life on making bookkeeping easier, specifically for real estate investors. Adam Hamilton is the co-founder of REI Hub, providing intuitive accounting software tailors specifically for rental property owners and real estate investors. REI Hub enables landlords to be their own bookkeepers. I'm gonna see landlords, but hosts 'cause they have a very strong focus on vacation and short-term rental owners, and he wants you to get it right more quickly and easily than ever before. Between user friendly software and stellar customer support. And that's what Annette and I are so excited about REI Hub for all of us is that you can call and talk to a human if you have questions about,

operators are standing by.

They are.

Annette loves saying that.

I love operators are standing by.

She really does. Ari I hub though, is changing the way property owners keep their books nationwide. And so this interview with Adam, yes, we want you to know about REI hub, but we're, this conversation is more around that mindset around bookkeeping and the different levers that we can pull to save money, to make more money, to be smarter with our investments and to make more investments. Adam, welcome to the show. Let's talk about the riveting, exciting, all-encompassing conversation of bookkeeping.

Oh, see, why'd you have to drop the, you dropped the beat.

That was for drama.

You gotta keep the party going though.

That was drama.

And we,

I appreciate the drama.

Okay.

We need more drama in the bookkeeping world, right?

Yeah, we do.

We do.

'Cause you know what Adam act, and I, and I'm, I'm not being, I, I mean this seriously, right Adam? We do need more excitement. We do need more drama because someone out there, I don't know, maybe you know who it was. Like painted this picture that bookkeeping and numbers is hard, dry, not boring, not fun, but it's nothing for fun. Not true.

Than seeing an amazing bottom line. I'm gonna start asking our accountants to do a drum roll as they get to the very bottom of the PNL. So, uh,

does it, does it change in timber or tone if it's positive or negative?

Yes. It's like, dun dun. And if it's, if it's exciting, it's like, Gloria, stefan, you know,

I gotta know Adam, what got you into the bookkeeping biz and to, and to solving this challenge of numbers for investors and their rentals.

That's a great question. And first, uh, Sarah, Annette, thank you so much for having me on the podcast. I'm super excited to be visiting. Thanks for Visiting. It's gonna be a great time. Um, and you know, I never thought I was gonna be in bookkeeping. You know, I, uh, I was a liberal arts major. You know, I, I, I thought I was gonna be solving a different set of problems. But what happened is my, uh, business co-founder and I decided, uh, that we wanted to improve the lives of the average real estate investor. We both have a number of people in our families who, um, are very small scale landlords, um, as their, you know, retirement plan, so on and so forth. Like, you know, two to five unit type people, right? Um, and we looked at the ecosystem and we said, wow, there are 50 different companies out there that have a button that says, collect rent now. And there are 50 different companies out there that are making accounting software for the average company down, down the comp, down the street. But there was nobody doing a little bit of both, right? And we talked to a lot of investors and we found that they had great tools to manage their properties. They had great tools to find their properties. They had great tools to market to potential, um, uh, in other investors or, or tenants or what have you, but they did not have any tools to bookkeep to account for their very unique businesses, right? Because a rental property investment is not exactly like every other small business in the world or in the us. It's got some unique characteristics, some unique challenges. Um, and we saw that this was a space that needed help, um, so that people could have real financials for their real businesses, um, in hopefully an easier way than ever before.

You just used some terms, you know, unique challenges. Let's share what those are that you, you see every day for, for the people that are listening of like, this is what you do need to be on the lookout for, because one thing that we do help a lot of our listeners and a lot of the members inside our membership is, you know, choosing the right person to help them with their books. So what are those challenges you see to prep them when they're asking, uh, whether it's a CPA or a bookkeeper to help them with their books? What are those challenges they could say, will you be ready to help me solve this?

Sure, sure. And also for the people who want a DIY, you know, like, like what is different about rental property accounting versus general small business accounting? Mm-hmm. Um, well there are a couple things. Uh, one of the first things that comes to mind is that there's a unique tax treatment for investment property. And this is long-term rentals and short-term rentals, but there's a special tax form, uh, this IRS Schedule E and that's for passive income. Passive income, meaning that it's derived from the ownership of an asset rather than your activity, rather than your active earning a wage or a W2. And that doesn't seem like that big of a deal, but. Well, that means that every single piece of small business accounting software geared towards services businesses, the corner store on the street, they're all working towards a different tax form. They're all working towards a different environment and a different structure. So trying to fit one into the other oftentimes feels they're trying to fit a square peg into a round hole. And one of the really big things there is that rental property investors have a requirement to track their income and expenses on a property by property basis. That doesn't seem like that's a big deal, and it's, doesn't have to be. But again, thinking about that corner store on the, on the, uh, the convenience store, how much more difficult would their bookkeeping be if they had to report their income and expenses on chips versus soda? Right. And that's what we have to do. Property one versus property two, unit one versus unit two inside the same property sometimes and especially for short-term rentals. This gets exacerbated over long-term rentals because there's so many more transactions. There are so many more moving pieces. There are so many more vendors, there's so many more platforms. Um, there's a lot going on and that, that can be really challenging. Um, and the need to report in a very specific fashion impacts how we need to think about our bookkeeping, how we need to structure our financial accounts and our systems and processes. Um, and then what those outputs look like on the end. And then the last thing I'd say is, well, not the last thing. I've got many more things to say, but one more thing is there are, um, really big assets and depreciation in this space, right? And it's a very asset and depreciation driven environment where, where it is driving complexity, but it is also one of the major tax benefits that is allowing so many investors to run cash flow positive businesses while showing a loss on taxes.

Say that again though. The cashflow positive. Like, just reiterate that because that is a mindset shift of like, how is that possible? So let's just ingrain that in our listeners, um, minds.

Yeah. So, um, it all comes down to the concept of depreciation. I don't normally dive into this so early in a conversation, but let's do it.

I mean, I think the big, beautiful bill every, it's like you, I've seen the word depreciation more everywhere in the last month than probably ever.

Well, depreciation is how the government allows us to recover the costs of our investments in our business. So when you buy a new property to become an investment property business to make money off of it, you don't get to write off the cost of the property, right? You don't get to say, oh, I'm gonna deduct this $500,000 in year one. No, because the government says you bought that to have an asset to have a business. Um, but you know what? That is real property. And that does get used up over time as people live in and use the property. So they're going to allow us to take what's called a depreciation, um, or a depletion expense. This is a financial only expense that only exists on our taxes. And, um, with it we can. Deduct basically 1 27.5. We're deducting it over 27.5 years, a different piece each year of that total initial investment in the property. So what that means is that you can have a cashflow neutral business where everything that's happening in the real world, your income equals your expenses. But then you get to come in and you take this depreciation entry, which can be five to $10,000 or more depending on the size of your, your property. And all of a sudden on your tax taxes, boom, you're now showing a five or $7,000 loss, even if you never lost a penny in the real world in that year.

And how does that, how does that impact how investors track their activity, you know, and, and, and how it is different than, uh, or I guess the, the focus that they put on tracking that. What is the importance of not doing that accurately, or what is the risk of not doing that accurately? If you've got anyone listening right now that understand that they have, um, access to that, but they've, but they've, they've not looked into it or they don't have, maybe their, their CPA isn't, doesn't understand or does it invest in real estate themselves? What is the risk of not really fully realizing that or tracking that accurately?

Uh, great question. Um, so certainly your CPA should be aware of it, and if they're not, that's a sign that maybe you need to do some research. Uh, but the really funny thing about depreciation is that the IRS is going to assume that you have taken it when you sell your property, no matter what. You have taken, or if you have not taken depreciation expenses, when you go to sell your property, the IRS will calculate how much they think you would've paid in depreciation. Um, and they will charge you a tax on that called depreciation recapture. So basically there's only upside and no downside because no matter what the IRS, when you sell that property, they think you're gonna have done it anyway and they're gonna tax you on that. Um, so it is, it is something that you simply cannot afford to not do. And honestly, it's something that drives people towards CPAs and professional bookkeepers. And I understand that, you know, I understand the complexities of it, but it is, it can be a little scary. Um, but that doesn't mean that it actually is, right? Normally we just have to dive in and like just get a little bit closer to it. You know, read two more articles and that pit of anxiety you feel from saying, oh, I don't know what's up with this depreciation monster. It starts to go away, right? Like, knowledge is light and power and it lets us see clearer into the darkness and feel better about what's down that pathway. It's not as scary as it seems, but it is something that you've gotta pay attention to.

I wanna talk about fear because this is something I see, um, we see it or hear it. I would say almost weekly,

Daily.

If not daily. And this is for, this is for anyone to also just stay like calm and rooted in it. We see bookkeeping for short term rental hosts. Highly ignored because they're so busy getting the property open and they think, oh, once it's open, then I'll focus on the books and then all the reservations start pouring in and then all the guest communication. And then they're like, well, let's just buy another property. And so we, you know, we know hosts, this is the thing that they put on the back burner and it becomes so overwhelming they don't even know where to start. So what, what would you say to someone that is. They're behind months, you know, maybe even years. What is just some advice that you would give of how to start piece, you know, taking it, um, day by day and not having this overwhelming monster, like you just said, bringing light, bringing some clarity. What are some steps, um, that they could take to just make it lighter for them, because it has to be done. That's, I think that's the biggest message is pushing this off is, is you're going to have to deal with it.

So you have a legal requirement to follow.

You have a legal requirement. So how do we help hosts start dealing with it? And, you know, just chipping away at it when it seems so overwhelming.

Uh, well, yes. First things first is we've gotta stop running from it. Um, but that can take a couple different forms. Um, the first thing that comes to mind is make sure that it's, that it's not actively getting worse, right?

Yes.

So, um, for me, that comes down to the foundations of good bookkeeping. That often comes with how you structure your financials. And what I'm driving at here is if you're a new host and you opened a property and you never opened another bank account for that property, this is your reminder. This is your loud and clear. Please go and open a separate bank account for your rental properties. And even if you're already behind, this is going to help future you, right? This might not help the last nine months of everything being in your personal account next to Kroger and Target and everything else, but this is gonna help future you, right? And by, by dividing our finances between business and personal, we give ourselves the opportunity to have an easier time with it, right? Because when you've got everything in just one big account, you have 2,000, 3,000 transactions in a year, you've gotta go through and trying to discern which of those were business related and therefore tax deductible, and which of those were personal and therefore not tax deductible is often. Um. A big part of that difficulty for For new hosts, because they don't think about the longer term impacts of shorter term decisions. Right. I opened this property, I just listed it on Airbnb. Oh, I wanna have a reservation. Oh, what account should I deposit this in? Oh, well, I already have my personal account. Let's just do it into there.

I, I wanna share, I was this person, I, I wanna mm-hmm. Be very vulnerable right now and let everybody know that is exactly what happened to me. I was opening a property in the beginning when I first started with, um, a partner and we were using that, uh, a joint credit card. So everything that we were buying, what was on that card. So in the beginning I'm like, okay, this is a business card. We're good to go. However, when I went to open my accounts on Airbnb, you know, of course. It's like, where do you want it to be deposit? Same exact thing that you just said. I'm like, oh, mm-hmm. Well I have my routing and account number here. Let's just for ease, because I didn't know, oh, I'm gonna get a reservation the same day. I put that in there and low and behold, before you know it, I mean within my first weekend of being open. I had a, because I was not using any sort of dynamic pricing, um, I was making all those things. I had a slew of reservations for, you know, months to come. And so I, I got thrust into that and, and I can just share that I was in that spot of like, oh no, I haven't been separating these. How do I do it? And it literally was, first things first, I had to go get that other bank account open and just start dividing,

Stop the bleeding.

You know, I, to stop. And I still actually, in my filing cabinet, I still, 'cause I'm like, if anybody ever comes back, I have those, like, this was personal versus, you know, I like pierce the veil or whatever that is called. But I, I have those deposit, like where those were going into my personal account. So I just wanna share with everybody. I've been there, I've done that. I've made the mistake. And exactly what Adam just said, that's what you have to do is just open the bank account and switch it. Like, just don't think, oh, I'll wait till the end of the year and then January 1st I'll make all the new ones like. There's no perfect time except for right now to, to get that switched over and, and you can, you can remedy it and you can like fix it. So if, if that is you, please, please do that today. And it might be maybe you're using your personal credit card and you switch that. 'cause I'm sure there are some people out there, they've got the Netflix or they've got something on their personal still that they're forgetting to just switch over. This is also your like, call today to sit down and those small outliers that are still there, make sure they're all on your business, your business account. So, so that's the number one stop today. What if, this is one thing that I wanna ask about. If they are, you know, let's say in arrears of, of doing their books, Adam. Mm-hmm. We get a lot of people that ask you like, well, I'm just doing it in spreadsheets. Do I really need. A bookkeeping accounting software. What is your offer there? We tell everyone, you are a business owner. You need bookkeeping. Like a spreadsheet is not going to do it. So let's talk about spreadsheets versus an actual software. Let's, let's, let's help our listener make that decision.

Sure. Um, so what I would say to that person is, uh, what do you know about accounting? And do you know how to set up that spreadsheet? Right? Because there's very little that's more intimidating than a blank spreadsheet, right? You, you go, you say, oh, this is easy. I can do this in Excel. And then you open up a workbook and you've got 10,000 empty cells staring at you in the face and you say, wait, whoa, what do I put where? And even if you download somebody else's pre-formatted, it's not leading you into anything, right? A spreadsheet cannot help you in the same way an accounting software can. Um, and there's a couple of facets to that. Um. A blank spreadsheet is not an organizational structure to work within, right? Um, a blank spreadsheet encourages you to put everything side by side, even when it shouldn't be side by side. Okay? I received this from a tenant. Oh, but what if it's a security deposit? Well, why is that on your revenue spreadsheet, right? Um, and on top of that, a a spreadsheet is not going to do any work for you, right? So, um, any accounting software is going to provide some automations that are going to streamline your processes. Uh, first and foremost among these is the ability to connect electronically to your operating accounts and import a transaction list. Right there, you're coming out ahead of a spreadsheet, right? Because you have now a to-do list of your business transactions 'cause you already opened that business account we talked about, and they're being presented to you for your categorization, right? So at that point, you at least have something saying you have an input that is giving you an idea of what you should be doing next, right? And then you've got the ability to do things like create automations. Every accounting software out there is going to allow you to, um, you know, look at the description of a transaction and to be able to automate how it should be handled in the future. So if you pay your turnover cleaner the same way every single month and the same amount, well you can maybe put that on autopilot and get a little bit of mind share back right now. Those are things you can do with any accounting software. But I'd also encourage you to consider rental properties specific accounting software, because it can go a couple steps further, right? So an accounting software designed for rentals out of the box can do a couple of things extra. Number one is it's gonna default to property by property tracking. You might be trying to do this in QuickBooks. In QuickBooks, you're gonna find this is something called class tracking. Yep. And you don't get it until you're paying about 90 or a hundred bucks a month. Yeah. I think it's in their plus package. It's expensive, right? Because for traditional small businesses, you don't need that until you're at a certain level. But for rental property investors, we need that as soon as we've got two properties. As soon as you've got a second investment, you need to be able to track things property by property. So if it's built for real estate, it's gonna do that a little bit easier. It's also gonna have a chart of accounts that is streamlined and already oriented towards the work that you need to do. Right? Because again, that corner store, that services business, they might only have to put things in two categories, like income and cost, right? That's not the case for rental property investors. 'cause you've got 16 categories on the IRS Schedule E that you need to break your expenses into. So having, um, a chart of accounts like that can give you, um, an idea of how you should be doing things. It's a lot easier to categorize an expense if you see the options are cleaning and maintenance supplies or repairs, as opposed to if you're just having to like make it up, right? And then that becomes difficult to map towards how it actually goes onto your software. Um, and then finally, um, a software dedicated for rentals is also often going to be able to templatize some things provide like a, um, like a transaction type is what we call it an REI hub. Uh, that that walks you down further, um, so that you can be less of an experienced bookkeeper, but if you still know what you're doing in English, in real estate terms, you can still kind of get it, get it right. Those softwares can also help, um, get data sometimes more directly from the source. So for example, if you can find a software that is able to consume data from Airbnb and vrbo, you're going to save yourself a lot of time in translating the information from their systems if you can consume it directly with your accounting software.

Nice. And I just as a, an encouragement to real estate investors out there, we are investing in real estate to build wealth. And so then I would argue so then don't go the archaic route of having a spreadsheet where you then are making your life so much more difficult and time consuming, like you even said right there, Adam, connecting it with the OTAs, the online travel agencies to help us more accurately track and have less room for error when organizing everything in one place so that when it does come time for tax time, our CPA can do their job of zooming out and seeing everything really clearly and being able to be more strategic with you instead of working with you in the weeds, so to speak, of your numbers and trying to clarify and, and reorganize and redistribute. And then you're spending, especially if they're an hourly CPA, uh, you're spending all this time doing the thing that the software could just do for you if you just made that business decision from the get go.

That's so true, and I'm glad you brought up the OTAs and channel managers and short-term rental platforms because that's also something that's a unique challenge to our industry because our ecosystem is still maturing and evolving and we don't think about it super a whole lot at this point. 'cause Airbnb kind of feels like it's been around for a long time, but it hasn't. And guess what? It keeps changing. Like, how often is Brian Chesky going into founder mode and giving us a new set of things to deal with? Right.

Right.

Um, and on top of that, other platforms, um, might help facilitate your calendar and your reservations, but they might not move the money. And then whoever's moving the money might consolidate deposits across different properties or different reservations, and it gets really murky. Um, on top of that, depending on where you live, uh, some municipalities don't allow something like Airbnb and VRBO to remit the, um, occupancy taxes, uh, to the, to the government, and then you have to do it yourself. Mm-hmm. And other places they do it for you, so you. Don't always even know. So I would also encourage any prospective investor to look up the specifics around short-term rental taxes in their municipalities to discover if that's something that's gonna be facilitated for them by Airbnb and VRBO, or if that's something they're gonna have to do themselves.

I wanna talk a little bit about the difference of, 'cause yes, we're all real estate investors, but there is, there are differences between a long-term real estate investment and a short-term real estate investor and investment. What are those common bookkeeping mistakes when someone has maybe been in the long-term rental game for years and they're pivot, either they've taken that property and they've turned into a short-term rental, or they get a short-term rental and they want, and they think that they know what it takes to actually keep those, those income and expenses organized. What, what kinda mistakes are you seeing people make and how are softwares, uh, helping us with that differentiation between the two?

Sure. Short-term rental investors, just, they see so many more transactions. And that in and of itself isn't inherently a challenge, but it means that you also have things coming from different places, going to different places, and it kind of ups the ante in terms of, um, just the general amount that you've gotta deal with there. And in terms of specifically short term versus long term, um, I think that the, the complexity around how you're getting paid, um, really, really factors into it. Uh, are you getting paid on, um, Airbnb, VRBO, booking.com, uh, direct booking site? Um, is it coming in through something else? Um, all of those things are gonna have slightly different pathways for the money to get to you. And on top of that, um, one of the common mistakes I see is in this, uh, world of, uh, gross versus net. And what I mean by that is, uh, the IRS wants to see your work. Okay. So they don't want you to just report one number to them at the end of the year that you've already calculated your taxable net income. They actually wanna see all of the revenues that you've, um, brought in and all of the expenses that you've spent. And the only way to do that is to look at your gross revenues and your gross expenses, and then that's what gets that net number on your Schedule E. But in short-term rentals and es especially, we often don't see the expenses or a lot of the expenses in the same way. A lot of 'em get netted out, and that's not, it's not like the end of the world, right? We're getting the right number, but sometimes we're getting it on the wrong way. Right. So, I, I just wanna make sure that short-term rental operators are recognizing that when they get a deposit, that deposit includes revenues and expenses. And those revenues are often more than just your nightly rent. Right? If you're charging cleaning fees, that's your revenue. If you're charging it to a customer, and it's not a security deposit or taxes due to the government, it needs to be recorded as revenue because that's how it's gonna go to the IRS when Airbnb, um, sends their, the, you know, all the 1099s and stuff along those lines. Um, another big one that comes to mind, uh, that is also an issue for a lot of long-term rental investors is the expense versus capital expenditure. Um, question, right? Uh, it's a tough distinction for a lot of people. Uh, when you're not an accountant, you tend to think of money spent as an expense, right? And that's very logical. That makes sense. But when we get a little bit deeper into the accounting and bookkeeping world, we realize that, uh. Just because you spent money doesn't actually mean that it was an expense, an expense being defined as a tax deductible transaction, right? Something you can write off against your income. Um, so what I would, uh, how I like to define these is that an expense is something that is managing or maintaining your property. Something that is allowing you to continue operating it as you have been. While capital expenditure or fixed asset purchases are where we are investing in our businesses and we are improving or updating or adapting them in a way that's going to allow us to continue to make money off of them or make more money in the future. And just having an, having a clearer understanding of what you are doing can really have a big impact on your taxes, right? Um, if you put a new roof on your house, that's a 10 to $15,000 cost that if you put as an expense on your taxes. That repairs column gets really big, right? And that might be a little bit of a red flag at times to the IRS, right? Um, something like a roof needs to be capitalized and depreciated over time. Um, now I do also want to throw a little bit, uh, out there to make everybody not so worried about this. The IRS does allow something called the de minimis election. So if you have costs that would technically be considered asset purchases or capitalized costs like an appliance, right? That's a home system. When you buy a refrigerator, uh, or a dishwasher, technically that's a, that's an five year asset that you can capitalize and depreciate over five years. But that's a pain, right? Uh, and the IRS agrees with us and says, you know what, maybe we don't need to make everybody depreciate an $800 appliance over five years. That's a ton of bookkeeping work, right? So the de minimis election allows investors for an operating property to expense what would typically be an asset purchase if it's under $2,500. So if you buy an $800 refrigerator, you don't need to worry about capitalizing it and depreciating it, you can just write it off as an expense.

I wanna throw a little bit of a curve ball and, and see if you can speak to this. We also, um, and Sarah and I both, this is one of the ways that we have built, um, helped build out our portfolios is we were co-hosting for clients.

Hmm.

And wow, that is a whole new mess of accounting because there's, you know, there's two different ways. Either you can receive all of the money and then pay the person you know, out that you are hosting for or they receive all the money and then you invoice. Do you have any experience with people co-hosting and have any advice on, you know, and I know there's some different laws in different areas about, uh, trust accounting, but what would you say to someone that is helping someone else host and sharing in, um, in the profits?

The first thing I would say is, congratulations. You just opened a new business.

Yeah.

Did you know that? And that's the thing is a lot of people don't know that. They don't realize that.

Mm-hmm.

You know, when we manage properties long or short-term rental, it looks a lot like, it looks the same if you're managing a property, whether you own it or you don't own it. Mm-hmm. Right. You gotta find a tenant, you gotta collect the money, you gotta take care of maintenance. But the accounting is totally different because you are not the owner of that property and therefore you are not filing that IRS Schedule E for that property. And everything I've talked about thus far kind of doesn't apply to you because at the point you're managing somebody else's property, you are providing a service. And that service is probably gonna be like a Schedule C self-employment income, right? Unless you've got it incorporated as an LLC or something, that's a whole nother thing. But people say, okay, well I'm already managing it. So like, what's the big deal about doing another one? Day to day, maybe not that much, but you need to recognize that, that you are now engaging in a different business activity than you were engaging in previously, and you're going to have to reflect that in your accounting and on your taxes. Now, from an accounting standpoint. A lot of it is simpler actually, if you're providing that service, because your revenue is not the rent, your revenue is your management fees or what, you know, whatever they're paying for it. Um, in terms of, you know, which way you do it, the accounting can handle it any circumstance, right? Um, I personally prefer when the owner of the property receives the bulk of the funds and then pays out. Um, the manager, I personally think that's cleaner because the majority of the funds are owned are, you know, due to the owner. Um, but they, they can really be different. And even things like, you know, who has the Superhost account can impact your decision making in that, in that regard. So I, I don't necessarily wanna say that it needs to be one way or another, um, but you and your owner, uh, you, you and whoever you're managing on behalf of need to be on the same page, right?

Right.

How are we gonna report this? How are we going to communicate about this? How are we going to transfer these funds and what are we gonna do when or if there's a problem?

This is actually kind of selfish, Adam, because we have, on our Tuesday episodes in our podcast, we have a, what we call a hosting hotline, and we had someone call in and we haven't, depending on when we air this, I don't, I don't know if it'll have been the past or the future here, but. It's actually kind of on this vein, but different Adam, they live on the same street. They're two hosts. They own the pro, they're individual properties. One has, you know, an amenity, like a hot tub, and the other one has amenity, like a, a pool, I don't know, something like that. They have different amenities and they're like, wouldn't it be great if we created one listing for both of our houses so that that guest could enjoy both the hot tub and the pool and this, they asked this question like, what do you guys think of that?

And we are like, oh, we're like accounting nightmares, stear clear.

Don't even know how to, like, you know what I mean? Like, because I'm just thinking, Adam, like, is this who on whose Airbnb account is it? Where are those funds going? Like, it's,

Like, we like the creativity. We're here for the creativity. I think that's the thing. What we're, what you're saying as a property manager, as a host, trying to share the, the property, or maybe it's a A DU, whatever it is. I think as entrepreneurs, as hosts, we do not lack creativity. It's the, the, it's the awareness of how do I take this creative path into a tax return? And I wanna share that's, I think everyone from this, this per this, these hosts that wanna work together and create something, even when hosts wanna do upsells, um, or, or co-hosting. Because co-hosting, a lot of times it starts with one, and then all of a sudden you're sitting there with 10, 15, 20, 30.

Mm-hmm.

And you're still doing the accounting from that first, you know, coffee chat that you had, chat and like, oh, just put it on my account. And now it's, uh, I, I want, I would just want everybody to think of the ultimate success. The all I, I think we sell ourselves short of, like, I want you to think that any relationship is. A hundred million dollars. So what do you do then? You know, like, what are those implications? And I think think really big on all of it. And I think that'll help you get to the solution maybe, um, in a much different manner than thinking, oh, let's try this and see how it worked. That's how I started my co-hosting. He was like, oh, let's try this. We'll see if it works. And then, you know, quickly, a hundred thousand dollars later, I'm like, oh yeah, we need to figure, we need to figure this out. You know? So I encourage everyone to think big and think about getting in contact with someone sooner than later, uh, to, to help them with that.

Think about the, the full picture, the full implications of that kind of decision. And I, I love what you said about how creative landlords and investors are, and it's so true. Um, and it's something that I understand so well, but from the accounting standpoint, a lot of people don't realize that they're baking themselves into more complexity and we're making decisions from different standpoints without necessarily considering the other. You know, a really big one I see a lot is people who have an LLC to own their properties and an LLC to manage their properties. And from a legal standpoint, this provides some nice protections, right? So some, some obviously limited liability corporation, but people make those decisions with a lawyer. Not thinking about what, how that's gonna impact what happens with their CPA. Right. Because each of those LLCs has filing fees to remain active in their states. Mm-hmm. Uh, depending on how they're structured, they might need to file a separate tax return. Right? Uh, think about co-investments, not just co-hosting, but anytime you buy a property with another investor. Congratulations. You've got a joint venture, a multi member LLC, or a partnership that has to file its own tax return, right? If you own the property in your name or in a single member LLC, it flows through to your personal tax return. As soon as you're doing it with somebody else in a partnership or joint venture, that entity now has to file a tax return. And guess what that means? Bookkeeping and accounting fees. Additional complexity that you're bringing in. And I don't wanna discourage it, right? Because you can have a killer business as a cohost. You can have a killer business doing a bunch of joint ventures with other investors, but you need to have your eyes open about it when you're making the decision and looking at it, not just from a legal standpoint, but also from a financial, also from a risk, also from a bookkeeping stand.

Mm, that's a really good point. We haven't talked about this in a while of, we believe, Adam, that you should have that trifecta of an attorney, a great CPA and a great assurance broker who knows what you're doing and what your future goals are, and that you kind of run these new creative ideas by all three so that you can make sure that what you wanna do is feasible and that you stay organized. And that way it doesn't become, it doesn't need to be complex. Right. Especially if you go into it with a plan. Mm-hmm. It can, it can, it, it is all possible. I mean, Annette and I have done all of those things. Mm-hmm. And it is possible. Um, and it's kind of fun to stay in,

including opening LLCs in our, in our tax with our, uh, attorney and then our accountant going, why did you guys, do you do that?

And we're like, I don't know, because our attorney told us to.

Yeah.

And they have different perspectives coming from their own,

then they have to pay to close that LLC down. So, yeah. Okay, Adam.

Well, and I like that you're calling the insurance broker out there too, because a lot, an alternate strategy I'm seeing a lot these days is that the high dollar umbrella policy instead of the LLCs as a, as a viable alternative. Right. And Sarah, I did not answer your question before your, um, call in. Yes. Oh yeah. They should create, create the se uh, the separate listing. Uh, one of them should co-host and pay out the other whenever they do that. But it needs to be on, in just one of them. And then they need to pay out the other.

But it could be awesome. It could be awesome. Right.

Could they have, could they have separate books or what, you know, when that, when that.

They would have separate books in that area where the person whose Airbnb account it wasn't, would just need to recognize some additional revenue. Right. And the people whose Airbnb accountant was, we just need to recognize some additional expenses. Hmm.

Yeah. It's easy.

Oh, it's all, it's all possible.

Right. Okay. I like that better than, that's all easy.

It's possible. We, we get sold, especially I think in our industry, this like easy button and Annette and I are very big on why do we want it to be easy? You know what I mean? Like, and it, and you know what, it might not be easy. It doesn't mean it's not worth it. Mm-hmm. It doesn't mean it's not possible, but it might take work, an organization asking questions. Which leads me to my next question, Adam, which is, I know you're a big, I believe that you are a big supporter of DIY bookkeeping.

Mm-hmm.

Right. Uh, so if there are these potential complexities, if there are these, um, creative entrepreneurs out there in our real, in the real estate industry, talk to me about the possibility of doing books themselves and how that's possible without making big mistakes. Sure. Um, and, you know, a lot of the, the, the big things and the mistakes, like we don't, we don't see right away. Right. Um, and the things that are easy, it's like, it's all easy when it's going well and then when it doesn't go well. So that co-hosting situation that is easy to rent, but what happens when somebody breaks their leg mm-hmm. Which property? Who's homeowner Insurance pays for that? Right, right. Um, in terms of the DOI situation. Again, this has been an evolving ecosystem, right? We're 10 years ago, this was barely an industry segment. Now we've got hundreds of, you know, or thousands of people who are, who are doing this on the day to day. So our, our tools are continuing to evolve, right? We didn't have the same options 10 years ago that we have today. And, um, what we've found at REI Hub is just by, by taking the steps to put traditional accounting in the language of real estate, is that it opens people's minds and breaks down some, some of those fear-based barriers, right? Um, when you can call your property a property, when you can call your revenue rent, um, and when you've got the IRS default chart of accounts, it's a lot easier than when you're trying to call your property a job and your tenant, uh, I, I don't even know what it is 'cause it doesn't make any sense for our industry. Right.

Right. So, um, doing things that are, are built for you, even if. If they're smaller or more expensive or less expensive, if it's made for you, you've got a, a slightly higher chance.

Right.

Of being able to feel confident in it. And what I've often talked about, um, here at REI Hub is as much as we're selling bookkeeping software, we're selling confidence. Right? Because that's the biggest impediment, that's the biggest barrier. If you are smart and capable enough to open and run and host short-term rentals successfully, you are smart and capable enough to keep your own books. Right. Yeah. I'm not, I'm not saying you should be able or do it all yourself and you're still a role for your CPA to play, especially in tax preparation and strategy, but, um, I'm talking about the day-to-day income and expenses that are the vast majority of the transactions you will encounter that if you don't do them yourself, you have to pay somebody else to do them. And I'm just here to tell you that it's not that bad.

Yeah. Especially when you have the tool that, it sounds like REI Hub when you log in.

Mm-hmm.

It kind of, for intent purposes, walks you through. It's already pre-built in there to talk our talk, walk our walk. So when things come in or things are going out of our account and we have to categorize it, that it's built within the software to kind of tell us the best way to do that.

Yeah. And I, I mean, I don't wanna oversell some accounting knowledge is always gonna be required, but that's why we've got a customer support staff. That's why you have a CPA. Um, but exactly what you're saying we're, we're, we're helping you walk further down the road on your, um, and some of those things are minor, you know, like a preset chart of accounts. It takes 10 minutes to update your chart of accounts in another accounting software, but how nice is it to not have to?

Mm-hmm.

Um, and then other things like being able to download Airbnb's payout summary with every single tiny bit of reservation data across all of your listings. Then upload it into your accounting software and have those income and expenses be automatically categorized on a property by property basis. That's not something you're gonna get from QuickBooks 'cause that's not their customer, that's not their client. Um, and so the more that you work with the people who are trying to solve your problems, most likely the better experience you have.

That's, um, I'm just gonna, I will talk about it since you are REI Hub, not QuickBooks, what is, like, you, you mentioned some of like one of the differences there, but let's go through that for people that are on the fence, because I know so many accountants, they're like, they just default to QuickBooks online. Go through some of bullet points of like what that difference is for someone that is in that phase of trying to figure out and, and want to choose.

Sure.

A software.

Um, so I, I touched on, on some of those things, so I'll reiterate reeder. Yeah, yeah. Uh, number one, in the language of real estate call a property A property, right? And that itself is a big deal. You know, we've got a properties page where we pull in the Google Street view of your house. You can even see a little picture and you just, you just know, okay, this is, this is the right thing, right? But, um, uh, built for property by property tracking. Um, so every single plan of ours, including the, the base one for $15 a month includes native property by property tracking without having to go into some crazy high tier. Okay? Um, we give you the IRS Schedule E as a default set of accounts, um, to make it easier to get started, but we allow you to expand and customize those to your heart's content. Um, little aside, every single short-term rental operator, you need a sub-account under a cleaning and maintenance for turnover cleanings 'cause that is such a big part of your expenses. you need to know how much you're spending in turnover, cleanings, versus any of your other cleaning and maintenance expenses. Um. We are, uh, we've created a set of real estate specific transaction types so that if you can tell us what happened. Was this an expense? Was this a loan payment? Was this a owner distribution? If you tell us what that is, we will then change dynamically the fields that we're presenting to you so that you are only choosing from the, the correct options. Right? So if you say this is an expense, we're gonna say what property and what expense account. If you say this was a owner distribution, we'll say to what account? To what owner did it go to? If this was a loan payment, okay, which of your loan accounts is that done? And then on top of that, because we're built for real estate, we have dynamic loan amortization created in our software to help people take their standard monthly loan payment, which is principal interest and escrow potentially, and then translate, um, all of those things correctly, right? Because your loan payment is not a monolith, you can't just write off the entirety of your loan payment. Um. And then, uh, we've talked a lot about depreciation as well. Uh, we've probably gone further down the path of native fixed asset tracking in REI Hub than most other companies ever will, because it is such a big part of the experience of a rental property investor. So what that means is that you're able to create different assets each with a different property, each with a different useful life, each with a different placed in service state. So that even if you are going all the way down the path of complexity and you're doing that big cost segregation study so that you can break all your assets down into their smaller, useful lives, um, you know, we've built a system that can handle that sort of tracking. So those are some of, those are some of the, the, the actual like in software items.

That's huge.

Yeah. But even beyond that, and honestly, if you look at our reviews on Google, what our customers care about even more. Is the fact that we invest in our customer support team. And you can call us, you can email us. And while we're not CPAs, and we're definitely not your CPA, we actually know a little bit about rental property bookkeeping, and we're willing to talk to you about it. And that's not something that you're gonna find, um, with most accounting softwares. So if you give us a ring, um, we'll pick up. If we don't pick up, we'll call you back. Um, but we'll be able to provide, even if not individual custom financial advice, we'll be able to help guide you in the right path for the questions you have.

Um, Sarah's gonna love that I say this so the phone lines are open now. Uh, I do, I'm gonna just, this is so that like, this is amazing what you have to offer. I know this is what people are thinking right now. I'm in QuickBooks, I love QuickBooks. Would that be a nightmare to switch? How would you answer that question, Adam? If someone's like this, this like sounds like. I, I want this, my portfolio's growing. I, you know, your, your pricing structure would be awesome. Even just everything. It's just, but I'm like, man, I'm really, I'm kind of devoted to QuickBooks.

Basically, the best practice is to choose a date and then do a cutover transition, right? Because QuickBooks doesn't make it easy to extract data out of their proprietary reports and put in a different accounting software, because that would hurt QuickBooks's bottom line, right? Mm-hmm. So they don't do that. Mm-hmm. Right? Right. So it's, it's difficult to take your data from QuickBooks and put it into another system, but what you is easier is if you pick a date. Often the beginning of the year, but doesn't have to be. And we use the ending balances in QuickBooks or a prev previous software as the starting balances in REI Hub or your next software. And then we just know that if you're looking at a specific date or transaction, you, if it's before that cutover date, you look at that QuickBooks. If it's after that cutover date, you look at REI Hub. So it is often a bigger impediment in their heads because there's this feeling of like, oh, well I have to make it perfect before I can switch. And making it perfect is hard to do in QuickBooks. Or if, if you're, if you're asking this question, then you know, it's, there's a good odds here in that circumstance. But it doesn't have to be because, um, it's just, you know, what's happening in the real world is happening. What's happening in your accounting software is tracking and reflecting and keeping that score. Um, and you can do that yesterday in QuickBooks and today in a different accounting software. And you can have a good experience. You just have to pay a little bit of attention, be intentional, choose a date, track before and after.

Okay. And then my last question is, if someone, you know, it's, you know, it's, we're we're just blowing through this year, like, uh, uh, as a freight train and they haven't done any and they haven't chosen accounting software yet, would it be easy, like let's say they are three months, six months, eight months behind, could they go in and start today and backlog

Sure.

From their bank?

Absolutely.

Okay, so.

Absolutely.

If they're out there, they don't have, don't have a solution, this is something they could choose. And, and start to get clarity that way when tax season comes around, 'cause it's coming even faster.

Mm-hmm.

They could be prepared. So that would be a real, you, you really would welcome them with open arms if they do have some past transactions that need to be,

A hundred percent.

Okay. Great.

Hundred percent you know, even if the bank like doesn't send them electronically, you can usually go to your bank and download your transaction list. Like this is your data, right? Um, so backdating is, is totally normal. And the other thing I'd say there, um, when you're talking about time of year and tax preparation, if you need to talk to your CPA schedule that conversation in the next two months. Right. Don't call them in March, they're not gonna answer. Don't say, Hey, do you think I should do this in February? They're busy. This fall is your opportunity. Reach out with your CPA if you need to, uh, need to ask some questions.

Yeah. And we would share, like listeners, if you would, could see Sarah and I's Google Calendar. We've, together as business partners had our call with, um, our tax accountant together as owners of property, we've had a call. And I know I, it's on my calendar personally because, you know, Sarah's a guide here. She's already had hers with her husband and I have my personal appointment set up. And I'm telling you, having those appointments in July and August, they are fun and they make you, they're empowering of like, you not only know where you've been, where you're going and you're pumped. Like it's like bring on tax season. So I I, I do wanna just reiterate what you said, Adam, that now is the time. And guess what? Your accountant is gonna give you preferential treatment because you are the person that was paying attention before it was required. And you will become a client that they will start doing quick work for, um, if you treat them with that respect and understand their calendar ahead of time and not just, you know, pinging them when you need them at the deadlines.

That makes total sense to me.

Adam, if you have a couple minutes, I know we're getting close here on time, but I do have some questions for you on that same topic. Let's say, first of all, everyone listening, if you are in QuickBooks and you're, and you're kind of seriously thinking about, could this be a better option for you? Here are three things I want you to think about. The pricing of REI Hub is much more affordable and in line with what we're doing with our properties than QuickBooks is. I mean, I'm looking at your pricing right now, Adam, on the, on the website, which is all very clear and simple. Um, it is quite a savings every month from QuickBooks especially. I mean, if you're using classes, it's significantly, um, more expensive to use QuickBooks customer service, Adam, if you're telling me that mm-hmm. During the business week, I could even speak to a human being who understands bookkeeping. Uh, that to me would be a game changer, especially if I'm DIYing my books.

Mm-hmm.

Um, and then the last question I have for you is, um, and why someone might wanna, you know, seriously consider this is can my CPA get access to REI Hub so I could have them check for me when I have my appointment in June and I have my appointment in October to make sure my books are on track? So come tax season, it's not, it's not a big mess. Can they get access easily to REI Hub?

A hundred percent. Uh, we have an access feature. You can grant full access or read only access depending on the needs. Um, and, uh, we see just kind of a variable response to, depending on the CPA in that circumstance. Um, a lot of folks prefer to work primarily through the exports and the reports that are very traditionally formatted. You know, a net income report looks pretty similar from QuickBooks or from REI Hub, right? Like that's a, a standard financial report. Um, but of course it is different to navigate our software than it is, than it is QuickBooks. So, um, if that's something you're interested in, you want your CPA to have, um, some visibility and some some access and some, um, opinions. Uh, again, do it now because in March they are not going to log into REI Hub and tell you if you've done things right or right or wrong.

Yeah. How long has REI Hub been around Adam and what are your, and what are your plans, um, for their future?

Uh, well we launched in December, 2019. So, uh, 2020 was our first season. Uh, we were, uh, selling in beta, uh, when the pandemic hit. So that was a lot of fun. Um, we were, we were pretty concerned for a minute, but it turned out that, uh, a lot of people needed real estate help We really believe in the power of doing one thing and doing it really, really well. Right? And so, um, our mission with REI Hub is to be the best bookkeeping system for rental property investors, um, in the United States. And that is gonna remain our singular focus. Um, that is, you know, we had to make a decision about this relatively early in the business because rental property owners have multiple needs, right? You need to manage the property too. You don't just have to keep the books. But when we were looking at what we could do and what we wanted to do, we decided to specialize because we knew that that is what is required sometimes to really solve the problem. Because if you try and solve every problem, you don't end up doing it, you solve them to 10%. Right. Um, and so we don't plan to add, you know, rent collection to REI Hub because we want to be agnostic to how you're managing your property, um, so that you can then unify your records across all of your different real estate investments. Right? So REI Hub is a, uh, works the same for if you've got a long-term rental yourself managing or rentals several states away with a professional property manager or if you're doing, uh, short-term rentals or if you're doing a fix and flip, right? Those are all completely different activities that if you are using an all-in-one solution for any one of them, you'd have to have multiple all-in-one solutions. Right? And we've talked already about how managing a property can look the same if it's yours or somebody else's. And so there are a lot of great tools that are just dedicated to those purposes, but there aren't other double entry accounting softwares that are just dedicated to doing this. Right? and so we believe that that's an important part, um, and piece to keep in the market. And then if we lose that focus, it's going to, um, not serve our customers as well.

And where can our listeners find out? Obviously we've chatted a lot about it, but if they wanna go and look for themselves, where should they go to find us?

Yeah, find us online at reihub.net. R-E-I-H-U-B.net. Um, you can call us REI Hub. You can call us Re-a Hub. I don't care. You can call us whatever you want. Just call us and ask the question. We'll, we'll help you out.

Awesome.

Adam, thank you so much for your time and your expertise. And with that, I am Sarah Karakaian.

I'm Annette Grant. And together we are. Thanks for Visiting.

Talk to you next time.