Financial insights are an excellent way to understand the health and success of your Golden investment property. You should be able to look at your rental income and expenses and know exactly what you’re earning and losing. With the right financial reporting, you’ll know how well your rental property is doing or whether a shift in course is necessary.
You can use financial insights to manage your income and expenses and to set some goals for the future. The right financials will help you make better decisions as a real estate investor.
With the right management of your rental property finances, you’ll increase what you earn and have a far better investment experience. You’ll know what’s working and what isn’t.
Good technology is essential. It’s hard to leverage all the information and data available through financial insights if you’re still working off a paper ledger or a simple Excel spreadsheet. Be willing to invest in the type of technology that helps you organize, streamline, and automate your accounting practices and financial reports. You’ll get more transparency, better accuracy, and a lot of detail when you use the right software and technology platforms.
Expert help is also an important part of getting everything you can from financial information. We always recommend that investors work with a financial professional. You can also get accounting and reporting help from your Golden property management partner. Your property manager should be able to generate all the financial reports and accounting statements you need, especially those that focus on income and expenses.
Here’s how to manage those insights and analytics.
Rental Property Accounting Technology
We’re starting with a talk about technology because it’s absolutely essential to accurate and error-free property management accounting.
There are a number of great software programs out there, even for individual landlords who only have one property or a handful. If you keep everything digital, you can access the information you’ve gathered from anywhere in the world, and that can be extremely helpful when emergencies pop up.
Look for a system or even an app on your phone that’s accessible, user-friendly, clear, and transparent. If you find yourself having to go to court, for example, you’ll want to be able to share an accounting breakdown for a tenant you’re evicting for nonpayment of rent. If your tenant asks for a list of their last 12 months of rental payments, you can send them that list in minutes.
Investing in good accounting technology will help you avoid mistakes and provide an immediate look at where you are financially. A lot of your data can be automated, which is a time saver.
A Short List of Valuable Financial Reports for Golden Real Estate Investors
Every investor will gather their information on income and expenses a little differently.
However, we believe there are five basic financial tools that must be at your disposal at all times.
- Create a Balance Sheet
A balance sheet is the first and possibly the most important financial report you’ll need. It gives you a lot of the information you need on a daily basis, and it provides that information in a succinct snapshot. Your balance sheet should reflect the monthly state of your finances as they pertain to your rental properties.
You can easily pull up your assets, liabilities, and the equity of your single property or your entire portfolio. If you’re trying to refinance or invest in another rental property, you might be asked for a balance sheet. Having it available will allow you to reflect your strengths and your weaknesses.
An accurate and complete balance sheet will include:
- Debts
- Actual balances
- Security deposits
- Cash available
- Land and building value
Most balance sheets break down into assets and liabilities. Anything that generates cash flow and increases the value of your portfolio will be considered an asset. The liabilities are likely to be anything you owe to others. Your mortgages, loans, and debts are liabilities.
Equity is essentially whatever’s left over once you subtract the liabilities from the assets.
- Review Your Income Statement
We’re talking about income from rent, and you’ll need an income statement that reflects what you earn every month or every quarter or every year. Some people will also refer to this as a profit and loss statement. The income statement will reflect your Golden rental property’s cash flow. We recommend that you itemize every expense and evaluate those expenses next to the budgeted goals that were set for the property. You’ll see how much you’re earning over an established period, and whether you’re meeting your own expectations.
When you see significant increases in expenses on your income statement, investigate why you’re spending more than expected on a rental property. This is a good example of why financial reporting is so important: it lets you catch some potential trouble spots in a single property or your entire portfolio.
- Keep a Reliable General Ledger
The general ledger tends to be more detailed than your other financial statements. It keeps track of all individual transactions that are on your balance sheet and income statement. A thorough ledger will bring together a record of transactions pertaining to your investment property. Each of those transactions will be designated as a liability, asset, revenue, expense, or equity.
- Established Accounts Receivable and Payable
How much do you owe? How much do people owe you? You’ll need a good accounting of your accounts payable and receivable.
Accounts payable is a report showing all of the financial obligations and short-term debts for which your property is responsible. This report will reflect who you need to pay, how much you need to pay, and with what frequency you need to make payments. This report helps you see your bills, protecting you from delinquency or additional late fees and charges. On your accounts payable report, you’ll see your mortgage, advertising costs, property management fees, and invoices from vendors like landscapers and pest control companies.
An accounts receivable report will reflect the money you receive from your tenants and anyone else. Basically, this will be rent. There might also be deposits, pet fees, late fees, and money owed to you for things like utilities. This report will highlight any late rent or delinquencies.
- Rent Roll
The rent roll is almost exactly what it says; a report that captures rental payments. This is a financial report that helps you plan for lease renewals, rental increases, and other future projections. You’ll use the information in your rent roll to make smart decisions about the future of your property. You’ll use the rent roll to calculate your ROI.
Golden Rental Property Statement of Operation
A financial statement that evaluates a property’s operations and present financial position is often called a property statement of operations. A lot of the information here may seem repetitive, and this is common in all the accounting and financial reports we’ve discussed. While you do plug a lot of the same numbers into these reports, each one is just a bit nuanced to give you a specific perspective or a unique understanding of numbers and data.
When you’re putting together your own property statement of operations, you can include information that is specifically relevant to you and what you’re measuring. This might be a property’s running costs, rate of on-time payments, overall revenue, and operating profit to give a comprehensive picture of the property’s performance and financial position.
An equation is also used in a property statement of operations to determine a property’s net income by deducting expenses from revenue.
Professional Golden Property Management and Financial Reports
There are a lot of excellent reasons to use a professional property management company, and one of those reasons is that you don’t have to track your own income and expenses. Most property managers will provide accounting services, and they’ll be reliable and automated.
A smart Golden property management company will provide accounting and keep you in the loop. You should expect monthly financial statements, reports when you need them, and an online portal that allows you to view maintenance invoices, lease documents, and security deposit funds at any time.
Property managers can be your best financial stewards when it comes to the money you’re earning and spending on your investment properties. With professional management, accounting technology is already in place.
You’re trusting your property manager with one or more of your largest assets. You’re also trusting your management team with all of your financial information. We know that providing accurate and consistent information is critical.
At Laurel Property Services, we deliver online accounting statements every month, and we’re happy to discuss them with you if there’s something that jumps out. Some real estate investors are only interested in quarterly reports and others like to see what’s happening monthly.
If you’d like to talk further about what you’re earning and what you’re tracking, we can help. Please contact us at Laurel Property Services, Inc. In addition to providing property management in Golden, we also serve Wheatridge, Morrison, Lakewood, Arvada, and Genesee, CO.
