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Rental Accounting

How to Create a Rental Property Income Statement

A real estate income statement is one of the most important reports for real estate investors. If a property is under or overperforming, a rental property income statement is central to understanding why. Additionally, a real estate income statement will report net operating income (NOI) which is a key figure used in important real estate financial metrics such as cap rate and debt service coverage ratio (DSCR).

What is a real estate income statement?

Also known as a profit and loss statement (P&L) or income expense statement, a real estate income statement lists all of the income and expenses associated with your property over a specified period of time. The report should beak down your portfolio by property and show total operating expenses and gross income to highlight total profits.

Information on a real estate income statement includes:

  • Gross rental income
  • Additional income (such as pet rent, late fees, or roommate rent)
  • Operating expenses (including property management fees, repairs, and landscaping)
  • Insurance premiums
  • Property tax payments
  • Mortgage interest
  • Net operating income (NOI)

What is included on a rental property income statement?

Your real estate income statement displays three main pieces of data, the gross monthly income, the total operating expenses, and the net operating income.

Gross Rental Income should include:

  • Monthly rental income
  • Other income sources
    • Pet rent
    • Appliance rent
    • Laundry usage
    • Storage
    • Parking
    • Late fees
    • Application fees

Operating Expenses

  • Monthly operating expenses
    • Advertising
    • Cleaning
    • Electric
    • Gas
    • HOA dues
    • Insurance
    • Landscaping & snow removal
    • Leasing commissions
    • Legal & professional fees
    • Licenses
    • Mortgage interest
    • Other interest (such as credit card)
    • Pest control
    • Property management
    • Property tax
    • Rental tax
    • Repairs & maintenance
    • Trash
    • Utilities
    • Water & sewer
  • Owner expenses attributable to property management
    • Auto expense
    • Continuing education
    • Dues & subscriptions
    • Office supplies
    • Telephone
    • Travel expense

Related: Tracking Rental Property Expenses: What Landlords Need To Know

Net Operating Income

  • Income – Expenses = Net Operating Income (NOI)
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Types of rental property income statement

Monthly income expense statement

Your monthly income statement allows you to analyze your portfolio performance on a month-to-month basis. This month-to-month report will allow you to easily spot any unexpected overheads, and closely monitor cash flow on an ongoing basis to identify income and expense trends over a longer time period.

Year-to-date (YTD)

Your year-to-date (or YTD) profit and loss statement shows your total income, current accrued expenses, and total net operating income from the beginning of the tax or calendar year to the date the report was run. This is a useful report to analyze your property’s overall performance and to give you an indicator of current taxable income.

Year-end

A year-end income statement for rental property is a report that shows the total income, expenses, and NOI for the tax year. This is usually generated at the end of the year and used to help compile tax returns and update any important rental property portfolio performance indicators such as cap rate.

Trailing 12 months (T-12 statement)

When talking about abbreviations, the TTM statement or sometimes T12 statement tends to come up a lot. TTM, or T12,  stands for “trailing twelve months” and generally refers to a financial statement that represents the entity’s performance over the past year from the current date.

A trailing 12-month report is used to monitor the change in NOI over the previous 12 months. A property’s T12, along with its rent roll and T3 (trailing 3-month financial statement) are some of the most important forms of documentation that a borrower will need to show a lender.

An example of rental property income statement calculations

In order to better understand how a rental property income statement works and can be used, let’s review an example.

For this example, we will look at a T12 real estate income statement for a single-family rental home. The purchase price is $200,000 with a 20% deposit and a monthly income of $2000.

It’s important to correctly classify and itemize all of your income and expenses to ensure you get the most practical use out of your report and use it to accurately and easily file your tax return. However, for the sake of simplicity, we have consolidated some of the example income and expenses.

Gross Rental Income

Rental income = $24,000

Other income = $150 (late fees)

Total income = $24,150

Operating Expenses

Annual operating expenses

Insurance = $1,200

Landscaping & snow removal = $300

Mortgage interest = $8,100

Property management = $2,400 (averages 8% – 12% of gross rental income)

Property tax = $2,000

Repairs & maintenance = $1,400

Total operating expenses = $15,400

Owner expenses

Travel expense = $2,500 (to visit out-of-state property)

Office supplies = $230

Total owner expenses = $2,730

Net Operating Income

$24,000 Income – $15,400 Operating Expenses – $2,730 Owner Expenses = $5,870 Net Operating Income (NOI)

Important metrics that utilize NOI

Cap rate

The capitalization rate is a good way to quickly calculate the potential of a property based on estimated numbers. The cap rate is a measurement of the rate of return on an investment property.

The lower the cap rate of a property, the slower the return will be. It takes into account the total (expected) income and the property’s current market value. The cap rate formula is a good one to take into account when comparing like-for-like investments in a single market.

Cap Rate = NOI / Property Value

Debt service coverage ratio (DSCR)

The Debt Service Coverage Ratio (DSCR) is used by lenders to determine the ability of a company, or loan applicant, such as a landlord, to repay all of its debt obligations. This includes repayment of the principal and interest on both short and long-term debt.

DSCR = Total Debt Service / Net Operating Income

Depreciation expense

The IRS allows owners of residential property used for investment purposes to depreciate the property value (excluding the land or lot value) over a period of 27.5 years.

To calculate total taxable income, subtract depreciation expense from your net operating income.

For example, let’s say the property value in the example above, minus the value of the land is $140,000, then the total annual depreciation would be approximately $5090. As the NOI is $5,870, the total taxable net income would be $780.

Automate your Rental Property Tracking and Income/ Expense Statements

In order to generate an accurate rental property income statement, whether this is an end-of-year report, a T12 statement, or a monthly statement, you need to keep detailed and careful records of all of your income and expenses throughout the year. Using spreadsheets for your income and expense tracking leaves a lot to be desired. It means you have to do a lot of manual data entry and generating an income expense statement is almost impossible.

Thankfully, there are plenty of software solutions on the market today that are designed to make this easier, less time-consuming, and more accurate.

Landlord Studio is designed by landlords for landlords with a principle aim to make tracking and reporting income and expenses easier. With Landlord Studio, you can track your expenses on any device in real-time. Digitize receipts at the point of sale, connect your bank accounts to reconcile transactions and reduce manual data entry, and easily generate any of over 15 reports including an income/expense statement, profit and loss summary, and our Schedule E report specially designed to help landlords at tax time.

All of our reports are filterable by date range, income and expense categories, and property owner meaning you can easily generate monthly reports, a T12 statement, a year-to-date profit, and loss statement, or an end-of-year income and expense statement.

With this data at hand, quickly identify potential problems and compare actual results to budgets. Regular scrutiny of key income and expense line items often yields insights and opportunities that might otherwise go unnoticed.

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Ben Luxon

Ben is the editor and lead writer for Landlord Studio. He has worked with real estate professionals all over the world and written educational articles on tech, real estate, and financial growth for sites such as Forbes, TechBullion, and Business Magazine.

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