Navigating Financial Reports as a Landlord

Managing a rental property business poses quite a few challenges for landlords. While you’re busy with day-to-day activities and managerial tasks, you may find yourself only rarely getting a good look at the bigger picture. It’s difficult to take a step back when you’re in the thick of it all, so how can you stay up to date on your finances? How do successful landlords and real estate investors routinely engage in rental property financial analysis so that they can remain in touch with their business? The simple answer? Financial reports.

What are Financial Reports for Landlords?

Financial reports, generally speaking, are financial overviews that provide information key to the success of your business. They amass all sorts of financial information—your income, expenses, tenants, cash flow, etc.—and present them in a way that makes it simple for rental property financial analysis at a glance. They can give you insights as to where your profit is coming from, where it’s going, and how to best manage it.

Though they may sound intimidating at first, financial reports are extremely beginner friendly. If you’re looking to grow your business, ensure its financial health, and enhance your professionalism, then it’s time to turn to financial reports. Need a place to start? Below, we’ll dive into some of the most common financial reports and what they’re used for.

Common Types of Financial Reports

Rental Property Profit and Loss Statement

If you’re new to financial reporting, consider starting with a profit and loss for rental property. At its core, a profit and loss (P&L) statement (also known as a net income expense statement or rental property income statement) details all of your income and expenses for a given period. Most P&L reports then subtract your expenses from your gross income to find your NOI, or Net Operating Income. This number essentially tells you whether you’ve made a net profit or loss for the period, but it’s not a direct reflection of the money in your accounts (just the money you actively earned for that period).

To begin your own, you can find a rental property profit and loss statement template online or use accounting software that will simplify the process for you. P&Ls are great for monitoring the profitability of your business, and it’s recommended that you generate one periodically—whether it be monthly, quarterly, etc.—so that you can stay informed.

Rental Balance Sheet

A rental property balance sheet reports what you own, what you owe, and what is owed to you. By subtracting your liabilities (money you owe, such as loans, accounts payable, etc.) from your assets (money in the form of cash, buildings, property, etc.), balance sheets calculate your business’s total equity (in essence, its net worth) for a given point in time. Many businesses use balance sheets to compare their equity across different years, which can be a great way to visualize growth. By comparing multiple periods, you can monitor the fluctuations in your finances and better prepare for the future of your business.  Before making any large decisions, it’s best to refer to your balance sheet to ensure that you’re in touch with your preexisting liabilities.

General Ledger for Rental Properties

A general ledger for rental properties serves as the catch-all for the majority of your financial dealings and transactions. Similarly to a personal ledger, rental property ledgers meticulously detail information regarding every single transaction for your business. You’ll record every instance that money exchanges hands, as well as other crucial details such as the date, the payment method, a description of the transaction, account numbers, and more—or less.

The great thing about general ledgers is that they are extremely customizable. There’s no right or wrong, but you’ll want to ensure that your ledger contains the key data you may need for rental property financial analysis in the future. General ledger software and online templates can be helpful guiding hands for building and keeping your general ledger if you need a place to start.

Rental Pro Forma Statement

When looking to expand your rental business, it’s important that you utilize the insights that rental pro forma statements have to offer. A pro forma projects the future profitability of a property by taking into account the expected gross rental income, vacancy rate, operating expenses, loan payments, and much more.

Based on these factors, a pro forma gives you a detailed look into the financial future of a property by predicting whether the ROI—Return on Investment—suits your portfolio and wallet. Before purchasing a new property (or if you’re looking to predict the future success of a property in your possession), ensure that you take the appropriate steps to create a thorough pro forma statement. Real estate always has more to it than meets the eye, so it’s important that you stay ahead of the curve.

Rent Roll

To keep track of metrics relating to your rental income, you’ll need to use a rent roll, a document used to organize a property’s rental income history, typically by unit. Rent rolls typically include information such as unit numbers, tenant names, lease term dates, security deposit information, and anything else you’d like to include. It’s a great tool for checking for any trends relating to your tenants, such as habitual late payments or maintenance requests from a particular unit. You can also keep close track of lease terms with a rent roll. This can be extremely helpful if you’re unsure of which tenants to reach out to about renewing each month.

Lease Ledger

Often confused with rent rolls, a lease ledger (also known as a tenant ledger) offers insight on each individual unit and lease. Think of it as applying a magnifying glass to your rent roll, as it allows you to closely track the dealings of each tenant. There, you’ll record information such as the dates that rent is paid, late fees, unit notes (such as maintenance issues), and their balance. Ideally, each tenant’s balance will be zero, but as this is not always the case, lease ledgers are a great way to keep track of any money you are owed. Additionally, you’ll want your lease ledger to include detailed information pertaining to each tenant’s security deposit, since you will need to be able to track this money down with ease if you must return it in full.

Rental Cash Flow Statement

A rental cash flow statement, similarly to a profit and loss statement, keeps track of the flow of your cash-related transactions. The main difference? While a P&L report is used primarily to report data over a specific timeframe, a cash flow statement is a real-time reflection of your current finances. It can showcase current metrics including your rental income, operating expenses, NOI, net cash flow, and more. A rental cash flow statement will provide you with the state of your finances at any given time, which will in turn reward you with financial clarity and peace of mind.

Rental Operating Expense Report

As the name implies, this report informs you exclusively about all things relating to your operating expenses. These reports focus on a specific kind of expense—regular, incurred costs that are necessary for the daily operation of your business (this does not include capital expenses, which we’ll discuss further in the next section).

An operating expense report breaks down your total operating expenses into categories so that you can view totals for repairs, insurance, property management fees, etc. To create this report, however, you must keep very detailed records, dates, receipts, invoices, etc. whenever possible to ensure that your expenses are accurately tracked and reported, especially if you plan to claim them as tax deductions. It’s recommended to regularly update your expenses report and record them as they happen to simplify your organization.

Capital Expenditure Report

As hinted earlier, a capital expenditure report is made to keep track of your capital expenses (also known as CapEx), which are long-term investments that improve or increase the value of your property in some way. These include expenses such as renovations, upgrades, new appliances, and more.

Whereas operating expenses are often smaller, recurring deductions on your taxes each year, capital expenses typically must be depreciated over their useful lives, meaning it’ll take you longer to see the full advantages of using them as tax write-offs. For this reason, it’s extremely useful to reap the benefits of a capital expenditure report for your rental property financial analysis. It’ll list all of your capital expenses and include the total cost, depreciation period, remaining depreciation, and more. If you have a variety of capital expenses that you’re tracking depreciation for, a capital expenditure report is in order.

Vacancy Report

When monitoring tenant turnover rates and planning for the future, you’ll want to refer to a vacancy report. Vacancy reports track and organize data related to your units and their tenants, with a specific focus on which of those units are vacant, how long they’ve been vacant, and overall occupancy trends. With this kind of data, you can pinpoint units that aren’t holding tenants for very long (or at all) and begin your investigation into why that may be. This report will also provide you with your vacancy rate, which is a very important metric for potential lenders and investors who are trying to verify your profitability.

Accounts Payable Statement

An accounts payable statement is a vital document for tracking who you are indebted to—which, as a landlord managing a lot of moving financial parts, is extremely important. With an accounts payable statement, you can track the details of what you owe, to whom it is owed, the payment status, and more. It helps you gather all of your outstanding invoices and neatly compile them into one place so that you can ensure you pay off your debts in a timely manner. With a one-stop for your invoices, you’ll spend less time worrying about whether or not your bills have been paid in full and on time, and more time checking off your to-do list.

Accounts Receivable Statement

Conversely, an accounts receivable statement is a document that reports the money that is indebted to you. Most of your accounts receivable will consist of rental payments from tenants, which is often referred to as rent receivable. An accounts receivable statement is a useful tool for keeping track of unpaid rent and other insights relating to your income, as it will tell you exactly how much money you are still expected to receive. If a tenant is late on their rent payment, then you’ll record it in your accounts receivable until you are paid what is owed. It’s an important tool for analyzing payment trends and keeping track of the income that you have not yet received.

Where to Start

With so many financial reports available to you, it can be extremely difficult to understand where to start with your rental property financial analysis. There are so many metrics and key insights that you need to pick from, so where do you start?

For starters, it’s important that you don’t wait to begin using financial reports until problems arise. Your future self will thank you, as it will be more difficult for you to glean the valuable information that many of these reports offer once an issue is underway. They are meant for regular analysis so that you can see financial hiccups on the horizon and take the appropriate steps to avoid them.

Our recommendation for those just starting out is to take stock of your rental business and decide on a few reports you’ll benefit most from. Then once you begin them, be sure to update (or generate) them periodically. Need a helping hand to guide you through the process? You may want to consider rental accounting software.

Simplifying the Financial Reporting Process

Many landlords find it difficult to closely track every single moving part of their business. It may seem a daunting task, given what you know now, to constantly update your books, ledgers, statements, and reports after your many transactions. You don’t want to drown in the details, but you need to keep track of them. Luckily, modern technology has allowed for the creation of innovative and user-oriented accounting software.

Rental accounting software such as Ledgre can automate the keeping of your books and the generation of various reports and statements. With bank synchronization and the ability to seamlessly import past accounting data, you can track your finances in a secure and convenient dashboard online. Your updated finances will allow rental accounting software to generate reports and other metrics so that you can make the best possible data-driven decisions for your business and improve your property’s financial performance.

Knowledge is power—and equipped with the knowledge that financial reports provide, you’ll be ready to grow your business and its profits with each calculated decision you make.