If you have one property or if you have 150 properties. You, as a real estate investor, own an buisness. Wheather you have an LLC or your properties are in your personal name (I reccomend an LLC) you have an appreciating asset that a customer rents from you to create cash flow and income for yourself. By definition you own a buisness.
To ensure this buisness is a growing and profitible buisness it is important to track various aspects of your buisness. Not only is it important to track these aspects to ensure growth and profit, but tracking will also insure you have all the correct information you need when it comes tax time. In this article we will outline a couple of the most important figures to track in your rental real estate buisness.
Rent & Expenses
Renting a house is more than sticking someone in there and collecting a check every month. There are expenses that go into owning and maintaing the property. Managing and keeping track of your monthly and expenses on a monthly basis will ensure that you don’t end up holding onto a property for to long that isn’t making money. I have used simple excel spreadsheets in the past but have recently moved all my tracking to Quickbooks. This allows me to input the rent that I recieved, the mortgage, and any repair or maitenance costs, that come out of the rent each month. I also track what portion of that rent goes towards my vaccancy expense and my capitol expenditures each month and this shows me exactly what my cashflow was each month. Allowing me to see my annual cash flow per property. This will take into account any changes in rent or any changes in my mortgage payment as well. When I pull these reports I immediately know what my strong cashflowing properties are and what properties I may need to find a solution to increase the cashflow.
Rehab on New Purchase
This may be the most important piece to track if you are planning on buying run down properties to force equity into. Each item that I purchase for a rehab goes straight from the reciept onto a spreadsheet. I note what the item cost, how many did I purchase, and what the item is, sometimes include a brand or size so I can reference that later. I also catagorize what catagory this item is for; switches and outlets are “electrical”, vanities are “bathroom”, faucets are “plumbing”. You would want to catagorize what these are into data sets that work best for you. What I use this for is so that I can look back and say “a bathroom this size with these repairs will cost this much” it helps me get a better idea of what aspects and costs go into a rehab when I’m walking through and setting a budget for a new project. Keeping these notes also allow me to go back and replace it with the same part; for example if a bathroom faucet needs replaced in a 2 bathroom home I would want to get the same faucet to match so I can go back and find the part number and where I purchased it and it’s all right there. Keeping these records will help you maintain the property in the future, get closer estimates on your budgets for new projects and be an archive of expenses for when it’s time to do your taxes.
Last but certainly not least is tracking the amount of equity you have in each property. Every month I pull my mortgage balances and input them into a spreadsheet. This allows me to track the principal paydown on each loan. I can then compare this mortgage balance to the current market value of the property and that will show me the amount of equity I have in the property. This is important because you want your equity to be working for you. If at any point your equity is more than 30% LTV you may want to ask yourself if its worth getting a heloc or refinancing the property to put your equity in a different deal that may be more profitable. By tracking all of your equity you will also be able to determine if you have enough equity across all your properties to start looking into a bulk line of credit or a comercial loan on multiple properties to make a bigger deal happen. If you know what your equity is on each property it also allows you to pair that with your other financials to track your net worth.
By keeping a close eye on your equity and financials across all properties, you'll not only make informed decisions but also track your growing net worth. As you continue your journey in real estate investing, remember that meticulous record-keeping and financial management are the keys to long-term success.