Setting up a property where another person owns 50% of the asset
trelimon
Member Posts: 15
Background
I have a small property portfolio of 4 properties with a 5th property half owned by a relative which we jointly inherited at no cost.
Questions
I have recorded the 4 fully owned properties as Asset expense transactions in a separate account for each property belonging to "Long Term Asset" section. What should I do about the 50% owned property?
1) do i just put down half the asset value? Or the full asset value (ie the value of the property not the value of my share) and in this case, how do I see on a report the value of the portfolio?
2) what about the fact that the asset cost nothing but has value - I suppose the asset value and cash movement is irrelevant??
3) the tenant sends all rental payments in full my bank account and I then pay the co-owner separately - how do i handle this since the invoice (amount Wave is expecting) is paid in full but ultimately half the rent is then transferred out - should I create a Bill from the other owner? What would the invoice say. I imagine this is quite common and I want to do the official way rather than a workaround
4) Would we be better off starting a new Wave business just for this property where the property is co-owned by the relative
5) Is it cleaner to ask have a joint account with the relative and have the tenant fund this account with rent and then transfer half to each owner and my half is the income booked into Wave - but even then the invoice amount would be different to the rent received.
As you can tell - I am an accounting newbie????!!!
Please help - i am sure i am overcomplicating this
Comments
Absolutely over complicating - set up a Joint Wave account for the one property, that way you can add your co-owner onto it as a collaborator too so they can see what is happening with the property. It would certainly also make sense to have a bank account specifically set up for that property, this keeps it separate from your main portfolio accounting and at the same time makes sure your co-owner can see all that is relevant to the joint property and only that.
Hope that makes sense
Regards
Hi Andrew,
Thanks so much for replying.
I definitely could set up a new company as you suggest (together with a new joint bank account) but I'm curious as you are a professional how you would do this in a normal incorporated business where a property company will have assets that are mainly owned outright but there some which they only have a share in. It would help to have it all in one place as the vendors are the same and it is one less place to look for my assistant to check for trigger events.
May I ask a couple of unrelated follow-ups since I am trying to get to grips with Wave....
a) I am acting as a 'personal landlord' ie. unincorporated and not a sole trader (and have no intention to become incorporated or ever reach the VAT threshold) but I have Bills eg. from the solicitor for conveyancing charges which include VAT. Should I input these bills as the net amount and add the 20% VAT in the tax field, or should I just input the bill as the total amount.
b) When inputting a line item on a Bill eg. solicitor - should I put the Expense category as 'professional fees' or under the asset name - remember i have an asset category for each property so presumably i can track the costs associated with each property and therefore work out profitability.
c) How do I record stamp duty? I naturally want to associate the payment of that large amount with the actual cost of the property (to calc real 'profit' on sale) but if i add to the property long term asset category then of course it counts the tax payment as something of value which its not. I guess it should be classed as an expense, so how do i link that payment to that particular property.
Sorry for all the questions
Your OP never mentioned that your portfolio is managed through a limited company - I presume those assets were purchased by the company and their costs of acquisition sit on the Balance Sheet?
The joint inherited property is a personal asset, unless you have sold your share to the Ltd company? If you had done so then your company Balance Sheet would show that cost as an asset (you of course could have Capital Gains to consider if that was the scenario). Oh, when you say that the inherited property had no cost it would have had to have been valued for Probate purposes surely, and it is that value that becomes it's "cost" to you as a personal asset.
If the joint asset is owned half Ltd and half by your co-owner then you can only show your half at the cost to the company (which would at the very least be 50% of the probate value attributed to it). What you have created, by the sounds of it, is a partnership where one partner is the Ltd company and the other is your co-owner. As such that partnership should account for the income and expenses and share the profits between the owners, so it would be necessary to have separate accounts (albeit very simple ones), a separate bank account, and complete a partnership tax return.
Without trying to pry too much I presume there was a reason why you opted to run your portfolio this way (ie through a Ltd) and why you opted to transfer your inherited property share to it?
I'm confused now, in your opening paragraph here you are talking about you being incorporated but now you are saying you aren't? With regard to the VAT, as you aren't VAT registered the VAT is just a cost and it isn't necessary to split your bill - show the legal fees as that in their entirety.
Your rental income isn't subject to VAT btw unless you choose to opt to tax your assets - I wouldn't recommend that.
Wave doesn't have the facility to create departmental accounts, at least not that I have spotted. You could create multiple expenses accounts for each property but this could become quite burdensome and potentially confusing - I'd be inclined to suggest that as that information is more to do with management accounting that you perhaps use spreadsheets to track the performance of each individual property (that or look at other software products that could facilitate the creation of departments, of which there are many to choose from). You could of course create Wave businesses for every property, but that wouldn't help with pulling figures together easily for completion of your returns without a spreadsheet to summarise the data with.
The stamp duty is an actual property cost and rightly should sit on the Balance Sheet as a cost for the property, your profit when you sell (or loss) for capital gains purposes, as well as accounting purposes, will be the difference between purchase price and associated purchase costs (eg legals, stamp duties) and the sale price (which itself is reduced by any associated legals/estate agents fees).
HI Andrew,
Thanks again for taking the time to respond.
Sorry for the confusion. No, it is not a limited company nor VAT registered. I was asking a hypothetical. It was my clumsy way of saying.... in a larger business where one doesn't typically set up new accounts instances (Wave 'companies'), how does one have a set of property assets owned 100% and other property assets part-owned.
Your point on Department functionality perfectly answer and explain the issue I was facing. Thank you. I knew what i meant but did not have the terminology. Makes sense. Real shame you cannot "tag" an invoice so you can report on it. Seems so obvious that anyone would want that. We have so few transactions that it may actually be easier than you suggest to manage having expense accounts for each property - i want to avoid Spreadsheets.
On stamp duty/legal fees - yes - i really want to do just that. But how do i get these transactions on the balance sheet? I think I would perfectly understand the logic of what you are advising me to do but I need to set the software/accounts up properly.
You are very kind to take your time to answer random questions like this
ps. Other entry-level software like Sage and Quickbooks seem to be set up for sole traders but I am acting as a 'private landlord' which I understand is different ie. acting in a personal capacity but treated like an investment entity so no national insurance reporting requirements etc. Is there a dedicated 'property landlord' set up for these alternatives? Any thoughts gladly welcome.
Hi Harper
We can all ask hypothetical questions, not really much use though if it isn't relevant to anything you are considering doing!
I'll get back to you on your other points later today all being well, or over the weekend otherwise.
Regards
I think you misunderstand me. It is not a pre-requisite to have an incorporated company in order to face the scenario I was illustraing. I simply used the hypothetical situation as a device to make the point that although I do appreciate in my situation your advice is a simpler way (using another company) there must be a non-workaround solution for large (ergo incorporated) companies - and I wanted to understand that because for reasons too boring to go into, i preferred having everything in one place. Anyway...!
I think we have crossed wires. In any event, i appreciate you are volunteering your time here and apologize for the confusion.
@trelimon
Sorry I never got back to you, slipped my mind if I'm honest.
The stamp duty should just be posted to the cost of the property it related to when bought, not shown separately as an asset in its own right (same goes for associated legal fees if relevant). If you use just one Waveapp "business" per property that would mean that not only do you have a record of the income and expenses of the individual property but also a full record of the underlying asset cost easily at hand. IF you go for one Waveapps business for the whole portfolio you can create separate asset descriptions for each property on the Balance Sheet and allocate the stamp duty to the appropriate one - but as mentioned before, for income & expenses they only way you can identify for ease of viewing the figures relevant to each property is to create income/expenses headings that you then suffix with your property name (or some other annotation that is easy for you to identify the relevant property). Unfortunately this will still only produce a total profit/loss account whenever you wish to view it rather than separate ones for each property. There are other software products designed specifically for property portfolios such as yours that can facilitate this kind of reporting.