How to Record New Investment Property Purchase w/ Mortgage

Robert_P1

I just purchased an investment property with a mortgage. I want to make sure this is recorded correctly. I need to record closing costs including down payment, insurance, and appraisal fee. I will have an interest only payment due each month.

EW Apartments
Purchase price - $1,250,000
Down payment - $312,500 (total wired at closing w/ closing costs = $331,451.89)
Loan balance - $937,500
Appraisal Fee - $6,000 (paid before closing)
Pre-Paid Insurance - $13,703.68 (paid before closing)

The costs above were from a different bank account since I just opened a new account for this property that is now linked to Wave. None of these expenses will automatically show up in Wave.

Please help!

gary_cms

IMO, use journal entires; I have given you four. I made the file in Numbers and it did not copy as I expected, but ask for clarification.

    Debit   Credit
Debit: Property     1,250,000.00    
Credit: Long-term liability         937,500.00
Credit: Your bank account       312,500.00

Appraisal Fee Expense   6,000.00    
Credit:  Your bank account      6,000.00

Closing Costs expense   18,951.89   
Credit Your bank account        18,951.89

Pre-paid insurance  13,703.68   
Credit: Your bank account       13,703.68

Total for each Dr. & Cr. column 1,288,655.57 1,288,655.57

Note-if the prepaid insurance, and I assume it is, for the life of the loan, you then should write off, to insurance expense, each month, the correct portion of the $13,703.68.

p.s. this is my first post; next time, I will attach a file in excel. Gary

Robert_P1

Thank you!! I greatly appreciate this.

Mikeg

@Robert_P1,
A couple of comments. From a US tax and accounting perspective, closing cost are not an expense. They are part of the cost of the building. You also need to split land out. Land is not a depreciable asset. Insurance would be an expense unless it went to escrows or you are accrual for tax purposes. Typically, the closing statement is used to do a journal entry and book the purchase, Debits to building, loan costs, land and credits cash from owner (equity), cash account and debt. It all depends on what is on the closing statement.