How to categorize mortgage principal: Transfer?

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 :slight_smile:
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 :slight_smile: 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 :slight_smile:

@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! :wink: Thanks for explaining that better than me

I’m glad I could help @anaaleja :slightly_smiling_face:! 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.