More and more people are realizing that being a rental property owner is a great way to build wealth, but, like any business, it takes a lot of effort and knowledge to ensure your investment turns a profit.
It's hard to know when your business is doing well if you can't track your profitability. Between rental income and expenses, you need to determine whether you need to make adjustments or stay on track to maintain a steady cash flow. How exactly can you track your financial performance?
Key Highlights:
- Tracking financial performance is essential for landlords in Atlanta, as it helps determine profitability and guide smarter investment decisions.
- A comprehensive financial report should include income, expenses, NOI, cash flow, and rent roll, providing a complete view of your rental property's financial health.
- Accurate expense tracking and cash flow analysis allow landlords to identify whether their property is generating positive returns or needs adjustments.
- Monitoring accounts payable, receivables, and capital expenditures improves financial organization and supports long-term planning for property improvements.
- Using tools or professionals, such as property management software, accountants, or property managers, can streamline financial tracking, reduce errors, and improve overall efficiency.
Making a Financial Report
The easiest way to track your rental property's performance is by laying it all out on paper. By accurately tracking expenses, you can determine whether you have positive cash flow. As for how often you should track your cash flow, a monthly or quarterly financial report would paint a clear picture of your property's financial health. Here's what should be included:
1. Income Summary
This section needs to show all the money coming into your rental business, including rental income, late fees, penalties, pet fees, and other additional income. This will help you track how much revenue your property is generating. You will need this to calculate your net operating income later on.
2. Rental Expense Breakdown
List all your rental property expenses, particularly those associated with operating the property. That includes maintenance, repairs, property management fees, utilities, property taxes, insurance premiums, HOA fees, marketing expenses, and advertising costs. You can even categorize each to make expense tracking easier.
3. Net Operating Income (NOI)
Your NOI is a key metric in tracking your rental property's financial performance. This is calculated by subtracting operating expenses from your total rental income. Keep in mind that your mortgage payments should not be counted as an operating expense.
4. Cash Flow Statement
This tracks the actual movement of your rental property's finances, including income from rent payments, expenses, mortgage payments, and final cash flow. Through a cash flow statement, you can clearly see if your rental property is making money or not, and property owners can determine whether it makes sense to allot money into capital expenditures or focus on rental property costs.
5. Rent Roll
The rent roll provides a detailed list of your tenants, including their names, unit numbers, lease terms, monthly rent amounts, and payment status. It can be useful for tracking occupancy and payment consistency, especially if you have multiple properties or renters.
6. Accounts Payable
Your rental property accounting report should always include unpaid bills to keep your financial obligations organized. You might spend money allotted for bills when you fail to acknowledge them. These typically include unpaid vendor invoices, scheduled payments, and other pending bills.
7. Accounts Receivable
Accounts receivable is the money you have yet to receive from tenants, such as unpaid rent, past-due balances, or other outstanding fees. Although the rent roll already records unpaid rent for the current period, accounts receivable provides a clearer table to help you monitor delinquencies and follow up on collections.
8. Capital Expenditures (CapEx)
It's important to track your major investments for rental property management, since you need them for long-term planning and value tracking. Property owners consider roof replacements, HVAC upgrades, renovations, or remodeling—all of which are crucial to increasing or maintaining your property value.
9. Rental Income vs Expected Income
By comparing directly, you can effectively track rental property performance. Some property management companies only show this part of the financial report to real estate investors, but if you hire one, it's best to ask for a comprehensive report to get a better look at your rental real estate income.
How to Make Rental Property Accounting Easier
Real estate investors often use tools or hire services to handle this side of property management, given how time-consuming it can be, not to mention the risk of miscalculation. Here are some ways you can make financial tracking more convenient.
Property Management Software
Many landlords use property management software to streamline operations and avoid repetitive tasks. While it may depend on the product you use, it can be used for online rent collection, tracking rental income, and providing predictive analysis.
Even property managers use it to reduce manual data entry, therefore minimizing errors. It can also analyze cash flow trends and include potential rental income in the real estate income statement, showing that you're on the right track.
Accountant
If you only need help with the financial aspect of property management, an accountant will provide the assistance you need. They can generate financial reports, handle tax preparation, organize bank statements, and analyze key financial metrics.
Accountants can offer advice based on your property's financial performance, such as when you can make capital expenses for property improvements. They are also knowledgeable about local laws and deductible expenses, such as property taxes or mortgage interest.
Property Manager
When you need help with general property management, a property manager can assist you with everything your tenants and rental property might need, including property maintenance, tenant screening, drafting lease agreements, and tracking rental property performance.
How your property manager handles your rental business ultimately affects your income and expenses. Regular maintenance reduces the risk of expensive repairs. On-time collection of rental payments makes for more effective expense tracking.
Rental Performance Tracking FAQs
How often should I create a financial report for my rental property?
- It's recommended to generate financial reports at least monthly to maintain a clear, consistent view of your property's financial health.
What is Net Operating Income (NOI), and why does it matter?
- NOI is calculated by subtracting operating expenses from total rental income (excluding mortgage payments). It's a key metric for evaluating the profitability of your property.
What's the difference between cash flow and NOI?
- NOI measures profitability before financing costs, while cash flow accounts for all income and expenses, including mortgage payments, showing how much money you actually keep.
How can I simplify financial tracking for rental properties?
- You can use property management software to automate tasks, hire an accountant for financial reporting and tax preparation, or work with a property manager for full-service support.
Handling Accounting So You Don't Have To
Analyzing financial data is a headache that many landlords dread. It's not just about calculating taxable income and property expenses. One mistake, and you can risk tax compliance or spending money you don't have. With PMI Georgia, tracking your financial performance will be a breeze.
We have a specialized accounting staff that won't just track income, but also maximize it. We can help minimize your expenses so that you can expand your investment portfolio much faster. We can provide monthly financial statements to help you keep a close eye on your rental business.
Contact us, and discover how property management services can help your business grow!
More Resources:
How You Can Reduce the Operational Expenses of Your Rental Property
Atlanta Landlord Rescue: Signs That You're Struggling as a Landlord
