Year End Statements: Understanding the Accounting and Using it to make Decisions

The Year-End Statement can be intimidating and hard to understand. Did you make money on your rental property? Did you lose money? The purpose of this article is to explain how to read and understand the year end statement and more about the rental property income statement. Also, tips to use rental reporting to see if you may need to make some changes. As discussed in a similar article, these reports were sent out to our clients in January, along with 1099’s.

What is a Year End Statement?

A year end statement is a summary of all the accounting for the entire year. It’s important because you will use it to provide to your accountant for your taxes. It shows all the income and expenses, as well as money held by our company for your property or properties. It beats having to go back to every statement for the year and add all those items up individually. What we’ll be discussing in this article is the summary by property and the net income by property.

What is a Rental Property Income Statement?

A rental property income statement also known as a rental property financial statement or profit and loss statement, focuses specially on the income and expenses associated with a rental property. It provides a detailed breakdown of the rental property’s financial performance over a specific period, typically monthly or annual basis. The rental property or real estate income statement allows the property owners to track rental income, expenses (maintenance, repairs, insurance, property management fees, and taxes), and calculate the net operating income (income minus expenses) generated by the property. The real estate income statement helps landlords assess the profitability of their rental properties and make informed decisions regarding pricing, expenses, and investment strategies.

Summary For Rental Property Statement

The summary by rental property shows the income and expenses for each individual property, including any money by the property management company associated with the management of that property. Although it has income and expense information, it’s not really a profit and loss statement for rental property. For that information, refer below to the net income by property report.

As a Real State investor in Oklahoma, you need to know everything about the financial condition of your rental properties. Hiring the right Oklahoma property management company to secure and enhance the value of your rental property would be a good option. Property Managers provide specific, detailed rental property financial statements so you can track your financial goals.

Here is an example of the report. Notice that there are three main parts to this report: Additions to cash, subtractions to cash, and adjustments. Let’s take the property to the far left.

Beginning Cash Balance ($0) 

The beginning cash balance is the ending cash balance for the property at the end of the last statement period (December 10, 2019). It is the amount of money available to pay bills for the property.

Additions To Cash

Additions to cash include any Income ($7,380), including rent, late fees, etc.

The owner contributions ($2,463.03) are cash paid by the owner. It is also possible that there was an owner contribution in which the owner didn’t actually send a check to our company. In this case, cash was moved in a bookkeeping sense from another property or property to offset a negative balance during one of the monthly reporting cycles. The software forces that type of thing to be categorized as an owner contribution.

Other additions to cash ($450) are items like security deposits or miscellaneous payments made during the period.

Subtractions From Cash

Subtractions to cash include Expenses ($4,496.07) such as property management fees, maintenance, make ready, or utilities.

Owner draws ($5,246.96) include money sent to the owner plus owner contributions.

Other Subtractions include money paid out such as a security deposit.

If the owner has multiple properties, there is a cumulative for all properties on the page for the summary by property report.

Recommended: Monthly Itemized Statement

Net Income by Property

The net income by property shows a detailed breakdown of all income and expenses for each property that the property management company managers for an owner. As you can see from the example report below, income includes late fees, legal fees (reimbursement from the tenant) other income, pet fees, prorated monthly rent, rent, reimbursement for repairs, and retained deposit. Expenses include property management services fees, legal and professional fees, maintenance, make-ready, repairs, supplies, and various utilities.

The report shows a total for income ($7,380) and expenses ($4,496.07), which matches up with the figures provided in the report above (summary by the property). The difference between the total income and total expenses is the net income ($2,883.93), which is the net 2020 profit for that property.

Also, note that the net income is the total owner draws minus owner contributions. The owner draws aren’t shown on the net income by property report but again are shown on the summary by property report above. Owner Draw ($5,246.96) – Net income ($2,883.93) = $2,363.03. Add the property reserve and you get the owner contribution (the property reserve is counted as an owner contribution).

Tips To Prepare Property Management Statement

Talking about the rental property income statements, you need to know much about preparing rental property financial statements. So how can you use this information for more than a handy-dandy report to send to your tax accountant? Plenty.

Keep in Mind a Couple of Very Important Points:

• Just because your net income number is positive, it doesn’t mean your net cash flow for the property was positive. Why? That’s because this report probably doesn’t take into consideration some of the other expenses associated with the property. For this example, the owner also pays a mortgage payment, property taxes, and insurance.

• If you had turned over property, especially if the tenant had been in the property for many years, you likely had to pay an unusually high amount to make ready expenses. And, you may have made some upgrades to the property that you can’t really count as an expense to that property in terms of evaluating the cash flow for that one particular year.

• If you had high expenses on a particular property, why was that? Was there a bunch of expenses as a result of tenant abuse?

• If the maintenance expense was high, why was that? By high, I use maintenance expenses as a percentage of gross rent. That percentage should be less than 5% for properties that are 20 years old or newer. And, those expenses should be no more than 10% for properties that are older than 20 years. 

FAQs on Real Estate Income Statement