What is a Rental Property Balance Sheet?
The Benefits Of A Rental Balance Sheet
Rental property management requires a wide variety of assets, expenses, and liabilities. If you’re putting your all into your rental business, chances are you’re putting a lot of tangible assets and money in as well. Unlike most other financial reports, a rental property balance sheet can tell rental property owners exactly how much they’ve put into their business, how much is on the line, and how much their business is currently worth.
What is a Rental Balance Sheet?
Rental property balance sheets are made to showcase what you own, what you owe, and what is owed to you. They’re a specific kind of balance sheet that essentially tells you the net worth of your rental business at a given moment in time. Additionally, they outline how much your business is worth overall, taking into account the cost of your assets and real estate investments (such as the building, land, equipment, and any stock). Many businesses use balance sheets to compare their equity across different years, which can be a great way to visually see growth. By comparing multiple periods, you can monitor the fluctuations in your finances and better prepare for the future of your business.
What Can a Rental Balance Sheet Tell You?
A rental property balance sheet will tell you a few basic things, primarily your assets, liabilities, equity, and total liabilities and equity. These kinds of metrics are important in determining the health of your business.
Let’s say your rental property business is profitable, but you’re concerned about any lurking loans and other money that you owe. With a balance sheet, you’ll neatly compile all this data and see your taxable net income, taking into account your outstanding payments to others.
The total equity on your real estate balance sheet will show your liabilities subtracted from your total assets and profit, which can be a great indicator of your true profitability and net worth. If your balance sheet shows that your liabilities are currently larger than your assets, then you may want to reevaluate taking on a new loan or reprioritize loan payments.
Benefits of Using a Rental Balance Sheet
Keeping a close eye on your business’s financial health is always a good idea, and rental property balance sheets give you a unique way to do just that. As previously discussed, balance sheets take into account the total amount that your business is worth, as well as the total amount that your business owes others. These crucial metrics should guide your decision-making, as it’s best to have a clear view of the bigger picture before any business decisions.
If you want to expand your business but will need to borrow money to do so, then referencing your balance sheet is a great place to start your business overview. How much is your business worth? Does it make sense for you to turn to a lender given your current liabilities? These are important questions you’ll be asking yourself when it’s time for expansion, and having an organized document to reference will simplify the decision.
Components of a Rental Balance Sheet
There are generally four sections of a rental balance sheet:
- Assets: Everything you own that adds value to your business (cash balance, accounts receivable, building value, land value, etc.). Keep in mind that rental income or rental property income statements do not apply as assets for the purposes of a balance sheet.
- Liabilities: Everything you owe to others (bank loans, accounts payable, shareholder loans, property taxes, tenant security deposits, etc.). Note that operating expenses and annual depreciation expenses do not apply in this case.
- Equity: The estimated liquidation of your property, meaning how much you have left over when you subtract your total liabilities from your total assets.
- Total Liabilities and Equity: The sum of your total equity and total liabilities.
As the name implies, when creating a rental property balance sheet, you’ll want certain aspects to balance. These aspects will be your total assets with your total liabilities and equity. These two should be equal, and if they are not, then you may have incorrectly crunched a few numbers. Your assets and liabilities should be itemized by each category, and for some businesses (typically larger ones), you may want to add subgroups within each section such as “long-term liabilities” and “current liabilities.”
How to Create a Rental Balance Sheet for Your Rental Business
On a rental property balance sheet, you’ll have three main sections: your assets, liabilities, and equity. Your assets and liabilities sections will have itemized values followed by a total value, which allows for better and more organized tracking. Below, we’ll dive into each section of a rental property balance sheet example.
When tracking your assets, you’ll want to account for every aspect of your business: buildings, property, your current cash balance, accounts receivable (money owed to you), equipment, and more. A very basic assets section on a rental property balance sheet template might look like the following:
| Assets | 2023 Value | 2024 Value |
| Buildings | $200,000 | $250,000 |
| Land | $50,000 | $50,000 |
| Accounts Receivable | $1,200 | $2,000 |
| Cash Balance | $6,000 | $10,000 |
| Others | – | – |
| Total Assets | $257,200 | $272,000 |
Your liabilities section will follow a similar format, except it will track any outstanding debts that you have. This will include loans, taxes, accounts payable (money owed to others), refundable tenant deposits, and more. Tracking your liabilities is vital because, in a way, it shows you exactly how much money you don’t have. A very basic liabilities section on a rental property balance sheet template might look like the following:
| Liabilities | 2023 Value | 2024 Value |
| Due Taxes | $2,500 | $3,00 |
| Bank Loans | $60,000 | $60,000 |
| Tenant Security Deposits | $6,500 | $7,000 |
| Accounts Payable | $500 | $350 |
| Others | – | – |
| Total Liabilities | $69,500 | $70,350 |
Your equity section will be a little bit easier to calculate, as you will use numbers that you already have to create it. By subtracting your total liabilities from your total assets, you’ll settle your liabilities, thus calculating your total equity (what’s left over). While your “Estimated Liquidation Value” accounts for the settling of all liabilities, your “Total Equity” would account for the liquidation value with any applicable shareholders’ equity subtracted from it (in this scenario, there are no shareholders). Using the numbers from above, it’ll look something like this:
| Equity | 2023 Value | 2024 Value |
| Estimated Liquidation Value | $187,700 | $201,650 |
| Shareholders’ Equity | – | – |
| Total Equity | $187,700 | $201,650 |
Finally, you’ll have your liabilities and equity section. This will easily be calculated by adding together your total equity with your total liabilities. It’s important to note that this number should equal your total assets, and if it does not, then your sheet is unbalanced. This likely means that you made an error in calculation, so be sure to go back and double-check your work. Your total liabilities and equity section will look something like this:
| Total Liabilities and Equity | $257,200 | $272,000 |
Together, these sections amount to a basic rental property balance sheet template that looks like the following:
| Business Name | 2023 Value | 2024 Value |
| Assets | ||
| Buildings | $200,000 | $250,000 |
| Property | $50,000 | $50,000 |
| Accounts Receivable | $1,200 | $2,000 |
| Cash Balance | $6,000 | $10,000 |
| Others | – | – |
| Total Assets | $257,200 | $272,000 |
| Liabilities | ||
| Due Taxes | $2,500 | $3,000 |
| Bank Loans | $60,000 | $60,000 |
| Tenant Security Deposits | $6,500 | $7,000 |
| Accounts Payable | $500 | $350 |
| Others | – | – |
| Total Liabilities | $69,500 | $70,350 |
| Equity | ||
| Estimated Liquidation Value | $187,700 | $201,650 |
| Shareholders’ Equity | – | – |
| Total Equity | $187,700 | $201,650 |
| Total Liabilities and Equity | $257,200 | $272,000 |
To create a rental balance sheet, you can customize your own from scratch in any format of your choosing (software like Google Sheets and Excel is recommended), or you can work with a preexisting template. You can find a general outline of a rental property balance sheet template Excel offers online, or search for other templates that will suit your unique needs. Alternatively, if you’re looking for a better way to organize your finances and automate your report generation process, you may want to consider rental property accounting software.
Using Software to Automate Financial Reporting
Landlords and real estate investors often deal with a daunting number of reports, metrics, KPIs, and more. With so many helpful insights from each report—as seen from the unique insights that a balance sheet offers—it can be difficult to stay on top of it all. Luckily, technology can simplify your accounting while prioritizing your business’s growth. User-focused rental property accounting software such as Ledgre automates the tedious jobs so that you can focus on the bigger picture. With financial report generation alongside automatically generated financial metrics and insights, you can be more aware of your financial health than you ever have been.
Conclusion
Rental property balance sheets are a great tool for determining your business’s next steps. If you’re in need of an organized one-stop for all things pertaining to your business’s net worth, then it may be time to create your own rental property balance sheet. And if you’re looking to further simplify your rental property accounting and prioritize your business’s growth, then consider switching to Ledgre and its many helpful tools.