How Real Estate Tech Can Help You Avoid IRS?
Joseph Edgar is a real estate investor with more than 20 years experience in real estate industry, a member of the US Treasury SSBCI Venture Capital Working Group, which works to bring best practices for early stage investment throughout the U.S. Also, Joseph is a co-founder of TenantCloud, an accounting software designed for single family rentals.
I was fourteen when I purchased my first rental property. Born in Chiloquin, OR home of the Klamath Indian and Crater Lake. As a son of a home builder I was taught to swing a hammer early in life. My parents dabbled in real estate investing, doing fixer uppers, and as one of the thirteen children - I was on the remodel crew. I saw the in-and-outs of the entire process. From purchase, then remodeling and finally selling. I was curious and put together my own math on what the investment property would net in profits.
The investing strategy is easy. Buy it, fix it up and then sell it for more than your total costs.
It became quite apparent that some basic accounting was not being done. In mingling with others who too did real estate investing in “single family rentals” it was even more apparent that most investors didn’t know their actual costs.
When I bought a run down house on the reservation, I accounted for every dime I spent on repairs, my personal time and the daily costs of the money I invested ($3,000 down). After doing more real estate deals including residential development, new construction and countess fixer upper remodel jobs I have come across many investors like my parents. Hard working folks with little ability to keep receipts, track costs or have the time to do any accounting if they did. It become very apparent that technology needed to help these real estate investors.
When the IRS finally came knocking at my parents door they wanted over $150,000 in back taxes they felt they were owed. This was mind blowing. The reality is my parents lost money on most of the real estate investments they made due to poor accounting. The irony is we had a very impecunious upbringing, to say the least, and the IRS saw my parents as wealthy real estate moguls. In the IRS’ perspective there were many purchases of real estate for much lower prices than they were sold, because my parents had no accounting to back up the true costs - it looked like big profits.
To avoid this from happening to other real estate investors I created TenantCloud. TenantCloud is free rental accounting software. Real estate investors who buy a property, fix it up and sell it or rent it can now keep all of their info in one place so the system does your accounting for you.
If you’re at the hardware store and make a purchase for a rental, you can use your phone to snap a photo of the receipt and it easily add in the costs to the appropriate job. If you have sub-contractors they can have their own account and you send payments through the system for free. If you have rentals then tenants can pay you through TenantCloud for free. By involving everyone in the process it knows how much you are receiving and how much you are paying - it does the accounting for you.
If you need to find out how much you spent on plumbing for the house on 123 Smith St. there are reports right at your finger-tips. If it is tax time and you want to figure out your schedule E or create a 10-99 for some contractors, it’s now easy to do within seconds on you phone or computer.
The key to the whole system is - it’s free. In 2013 there were 13 million single family rentals in the U.S. now there are over 15.3 million and only 200,000 of them are owned by institutional investors. That means most single family rentals are controlled by folks just like my parents who need an easy solution to take care of their rentals. And TenantCloud was built to help them.