Hello everyone,
Every month I make a deposit to the bank account that pays the mortgage of one apartment. This transfer is an extra deposit to the mortgage principal. When this is done, Stessa classifies this as a transfer, however, I do not know how to categorize this transaction. Is it a transfer, then an owner contribution? or I should just categorize it under mortgage principal payment? I appreciate your input 
Thanks in advance.
@anaaleja I suspect Stessa is auto-categorizing this expense as a “Transfer” because there’s another line item already capturing the same transaction as a “Mortgage Payment.” This helps avoid duplicate transactions when you have both a mortgage account and the bank account from which you pay the mortgage connected. Is this true for your situation?
@Devin_Redmond Thanks Devin for your reply. Let me explain this better I have a Chase bank account (that is not in my Stessa account) that I use in order to send money to my Florida Credit Union account. This last bank account is used to pay the mortgage and everything for this specific apartment. In addition, every month I send $XXX from Chase to Florida Credit Union to pay more to my mortgage principal. This amount is on top of the regular mortgage payment. But the thing is that I do not know how to categorize this transfer. Stessa categorizes it as “transfer” because is a transfer from Chase to Florida Credit Union, and also it has been categorized as income because is a deposit. But realistically, it is just me, the owner of the apartment, sending more money to pay my mortgage quicker. How do you think this transaction should be categorized? Thanks for your input on this matter
@anaaleja, can you clarify some things for me? Is the Florida Credit Union (FCU) account linked to your apartment in Stessa? If so, are you asking about how to categorize the “transfer in” to your FCU from the Chase account that is not linked to Stessa? If so, it seems that you are transferring in additional funds (personal), funds that are not generated from your property’s cash flow, to make an extra payment on your apartment’s mortgage. Does that sound correct?
@macioceproperties You are totally correct. That is what is happening! 
Thanks for explaining that better than me
I’m glad I could help @anaaleja 
! I have actually asked a similar question.
The answer to your question depends. In my opinion, the transfer between your Chase account and FCU account represents a contribution. You are taking “personal” money and contributing it into your property. Is your property in your personal name or under an entity such as an LLC?
I only ask because I treat each property as a “business”, whether it is in my personal name or owned by an LLC. When an owner pumps more money into a business, it is a contribution. With this approach, I can track how much I have invested into a property to calculate a return.
To answer your question, I would categorize as an Owner Contribution; however, I am not sure how Stessa utilizes that category because I have received mixed reviews on how it should be used.
As an update, my thoughts are this: Stessa is not designed to track investments, calculate ROI or CoCR, rather, it is designed to track single cash-based transactions for a property. Therefore, it does not delineate between personal cash and property cash.
For example, I have a property that I just acquired with zero tenants. Since I have acquired the property, I have replaced locks, paid for utility transfers and usage, and covered the cost of miscellaneous repairs. I am paying for these costs out of a personal checking account because I am not generating any income from this property. This account is not linked to Stessa, and I do not want it to be linked.
Since I want to track these costs (expenses) against the property, I must add a transaction to record the expense. On the reports, Stessa will reflect these costs as operating expenses, which is correct. However, as I mentioned above, Stessa only tracks cash-based transactions, therefore, Stessa will show that my property is generating negative net cash flow (no income - expenses = negative cash flow). That is not necessarily correct. As the owner, I am pumping more money (investing) into the property to cover working capital needs.
I should be able to record those expenses as contributions; however, I do not think Stessa supports that at this time.
@macioceproperties @anaaleja I’ll jump in here with a few clarifications:
When it comes to Owner Contributions, Owner Distributions, and/or any other sub-categories under “Transfers,” Stessa reports these “below the line.” Transfer categories are intended to help you track flows of money and balances, but do not impact property or portfolio-level reporting or metrics.
When you run the Income Statement report, you’ll see all Transfers broken down by sub-category, reported below the NOI line. This can be helpful for tracking Security Deposit balances, property management account balances, and other in/out flows.
If you want to track an actual expense and charge it to the property or portfolio in the year incurred, make sure you are using regular expense categories (not Transfers and not Capital Expenses).
If you are incurring expenses for a property prior to it being “ready for lease,” then you may want to capitalize them if you have determined that your property is not yet in service. Use the provided Capital Expenses sub-categories for these line items and they’ll show as CapEx instead of regular expenses.
Finally, keep in mind that Stessa does not provide tax advice and you and your CPA are ultimately responsible for any final decisions about how to categorize certain transactions for tax purposes.
Learn more about Placing a Property Into Service and Classifying Expenses as Repairs or Improvements with the Real Estate CPA.
Hope that helps!
@devin @macioceproperties thank you for all your input and advice.
I’ve been categorizing those extra payments as owner contributions since I’m putting my money towards the apartment and I’m creating equity with those extra payments to the mortgage principal. However, I do not know if that is reflected in the debt of my portfolio on the dashboard of Stessa. I do not know if I’m wrong with that approach.
Also, I’ve been having a negative cash flow when I categorize my contribution to the mortgage principal. My question to Devin, in this case, would be: would you consider additional payments to the mortgage principal an expense?
Thank you all for your time and help.
@devin, this is the crux at which I am trying to get to. I want to know what my “cash in” is for my properties.
@anaaleja Extra mortgage principal payments should be categorized as negative amounts to “Mortgages & Loans > Mortgage Principal” since they are actual payments, not simply movements of funds.
In terms of automatic updates to debt balances, this is something we’re currently working to improve. If you’ve connected your loan account, you should see the new balance reflected on your Data Sources page next to the account number. Soon, this new balance will also be reflected elsewhere in Stessa.
If you haven’t connected your loan account, then you’ll need to manually update your debt balance on a recurring basis via the Mortgage card on your Property Details page.
@devin I did categorize the extra mortgage principal payments as negative amounts (Money Out) to “Mortgages & Loans > Mortgage Principal”. Now I have one “Mortgage Payment” for the normal mortgage amount (includes property tax and insurance). One “Mortgage Principal” for the extra payment. The total “Mortgage and Loan Expenses” is the total of these two amounts on the Net Cash Flow report and the Dashboard.
Does it mean Stessa consider the extra principal payment as Expense? I thought the IRS would not allow it to be as an expense.
FYI. I didn’t link my mortgage bank to the Stessa but would update the loan balance manually after each mortgage payment.
joeyseven
I am curious of the same thing. It seems if I make a owners contribution of lets say 50k and then pay a principal pmt as 50k it should not show as an expense and giving a false result to Negative Cash Flow. Is there a different way to process these transactions. If I do it as a transfer it would show nothing or delete it and manually update the balance. Please advise I love the program but plan to pay down several loans this year.
@ackprop, I eventually followed other suggestions here that put the extra principal payment to owner distributions. I continue updating the loan balance manually (I just don’t want to link so many accounts). I’m more concerned on the total amount of expenses because I will use this number for tax return filing. I’m okay for now the way how it shows the total transfer amount. As long as I can see the correct loan balance and Loan-to-Value ratio, I am good.
I wish there was a Transfer sub-category for Principal Payment, and it would reduce the loan balance automatically.
@joeyseven Just to clarify, extra principal payments should be treated no differently than your regular principal payments. We recommend classifying both as Money Out to “Mortgages & Loans > Mortgage Principal.” The source of the extra principal funds (personal bank account, property bank account, bake sale, etc) is irrelevant. What’s important is that it’s a cash outflow related to the financing of the property being tracked. Also keep in mind that while principal payments cannot be deducted for tax purposes, most investors still find it beneficial to track the cash outflow so that it appears accurately on the Net Cash Flow report. Hope that helps!
Why would additional principal payments be treated the same as regular principal payments? This is profit being put back into the home. Is this profit considered in reports like Net Cash Flow? No. Then it should be different from regular principal payments.
What effect on reports does categorizing the mortgage into sub categories such as Interest, principal, insurance have? Does this change the Net Cash Flow?
The more I look at it it only makes sense to change it to owner distributions albeit unrealized until time of sale.
@delpropllc “Profit” is a somewhat vague term when it comes to rental property investing. It means different things to different people and so it’s not a term we use much in our reporting or metrics.
When it comes to Net Cash Flow, investors often look at it both ways: before and after principal payments. Principal is obviously not an expense, but it’s often a required cash outflow, which means it’s cash that’s not available to you for other uses. It’s also a form of “forced” savings in that it reduces your mortgage liability, but it’s also not guaranteed you’ll ever get the money bank. Values do go down, and sometimes they can even dip below your loan balance depending on how long you’ve owned the property and how leveraged you are.
The Owner Distributions category is really intended to track transfers of money from PMs or other third parties to owners. Typically these are funds that have already been accounted for at the Property level, either through Income > Rents or other Income subcategories.
To the extent you make extra principal payments by choice, this is still a net cash outflow. You no longer have use of the funds and the cash is in the lender’s pocket, not yours. The benefit shows up in the form of a reduced mortgage liability on your balance sheet, which increases your implied equity.
Hope that helps!