The Year-End Statement can be intimidating and hard to understand.  Did you make money on your property?  Did you lose money?  The purpose of this article is to explain how to read and understand the year-end statement, and how to use it 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 2020 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 I’ll be discussing in this article is the summary by property and the net income by property.  

Summary by Rental Property Statement

The summary by 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 that information, refer below to the net income by property report.  

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 on the far left.  

Rental Owner Statement
Statement period12/11/2019 – 12/5/2020
Statement date4/19/2021
CJLB Home & Rentals LLC.
C/O Dir. Dep.
2501 Rumble Lane
Edmond, OK 73034
Summary by property
1029 SE 40 StAll properties
Beginning cash balance$0.00$0.00
‘+ Additions to cash
Income$7380.00$7380.00
Owner contributions$2463.03$2463.03
Other additions$450.00$450.00
– Subtractions from cash
Expenses$4496.07$4496.07
Owner draws$5246.96$5246.96
Other subtractions$0.00$0.00
Ending cash balance$550.00$550.00
– Adjustments
Tenant security deposits and early payments$450.00$450.00
Property reserve$200.00$200.00
Available for payment-$100.00-$100.00
Income statement
1029 SE 40 StAll properties
Income
Pro-rated rent month$230.00$230.00
Rent Income$7150.00$7150.00
Total income$7380.00$7380.00
Expense
A-Management Fees$1056.50$1056.50
Maintenance – Hourly$472.70$472.70
Make Ready$307.50$307.50
Make Ready – Hourly$1738.55$1738.55
Supplies$605.09$605.09
Utilities – Electric$70.80$70.80
Utilities – Water$244.93$244.93
Total expenses$4496.07$4496.07
Net income$2883.93$2883.93

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 rents, late fees, etc.

The owner contributions ($2,463.03) are cash pain in 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 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.  

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 for the example report below, income includes late fees, legal fees (reimbursement from the tenant) other income, pet fee, prorated monthly rent, rent, reimbursement for repairs, and retained deposit.  Expenses include management 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 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 for Property Management Reporting

So how can you use this information for more than a handy-dandy report to send to your tax accountant?  Plenty.  

But 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 upgrade to the property that you can’t really count this 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?  Were 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. 

Is it absolutely necessary for a property management company to send a 1099 to the owner stating how much was paid in as rent for their property?

Yes, it is the law.  Failure to comply can result in penalties and fines by the IRS.  

Does the year-end statement show how profitable an owner’s properties were?

The net income is income less expenses that flowed through the property management company.  The owner often pays their own property taxes, insurance, and mortgage payments.  Those all factor into calculating the cash flow for an individual owner.  

What is the definition of a year-end statement?

A year-end statement is a financial statement prepared for an owner that shows a tabulation of all the monthly itemized statements for the entire year.  

© 2021 Copyright OKC Home Realty Services, LLC. Licensed Broker Powered by Splendour Group Pvt Ltd