Tracking Your Tangible Net Worth (and Why It Matters)

As a property investor, your tangible net worth can directly impact your ability to grow your portfolio. Here's how to track it.

Property management is largely a numbers game and as such, there are numerous metrics and calculations that can help you identify potential deals and the financial health of your current portfolio.

If you’re a property investor (and even if you’re not), it’s important to keep an eye on your tangible net worth, as this can directly impact your ability to grow your portfolio. Having a higher net worth will enable you to secure funding for future projects and will give you financial security.

One thing to note is that high net worth does not necessarily equal a high credit score. If individuals or companies are lacking when it comes to debt management, they may have a low credit score but a high net worth. This is important to consider, as your credit score is a primary metric lenders will use to judge your financial responsibility should you pursue financial strategies such as HELOC or BRRRR.

What is net worth?

In short, net worth is a measure of assets minus liabilities. Assets are things that you own, such as property and cash, whereas liabilities are things you owe, such as loans, debts, and mortgages. As a rule of thumb, your goal should be to increase your net worth by both increasing your assets and decreasing your liabilities. Low net worth can be indicative of financial instability, although this is not always the case.

Tangible net worth calculation

Tangible net worth is a relatively easy calculation to make. It is equal to the value of your tangible assets, minus the value of your liabilities.

Net Worth = Assets – Liabilities

The most difficult aspect of calculating your net worth is categorizing and evaluating your assets and liabilities. As a landlord or real estate investor, your assets and liabilities may fall into the following categories:

Examples of Assets

  • Real estate (including your home and other rental properties)
  • Cars and vehicles
  • Land
  • Cash
  • Stocks and bonds
  • Tools, machinery, and equipment

Examples of Liabilities

  • Mortgage
  • Student loan
  • Credit card debt
  • Short term loans
  • Bank overdrafts

What is tangible net worth?

Tangible net worth differs slightly from net worth, as the calculation does not include intangible assets such as:

  • Rights to patents
  • Intellectual property
  • Brand
  • Reputation

Not only are these assets difficult to quantify, but they are also often not relevant to landlords anyway. For the sake of this article, we are discussing tangible net worth, which is net worth not including the above assets.

What is realistic net worth?

It goes without saying that positive net worth is preferable to negative net worth, but whether or not it can be considered good is ultimately determined by too many factors to count.

Having a net worth of $50,000 might be reasonable for a small portfolio investor with a handful of single-family home investment properties and reliable tenants. But for a career property investor managing hundreds of doors, this may not cut it.

Even a high net worth may not be sustainable in itself without enough cash flow to support your overheads.

In short, it really depends on the person and investment strategy. Needless to say, a negative net worth (where your liabilities are of higher value than your assets) is a red flag and should be avoided at all costs. Low or negative net worth is indicative of high debts and you’ll likely find it hard to get additional financing. If you find yourself in this situation, you should focus your immediate attention on increasing cash flow and reducing your debts.

Should you use a net worth tracker?

It’s no use calculating your net worth if you don’t have a way to track it. The most basic way to track your net worth is by using a simple spreadsheet where you can track your assets and liabilities throughout the year. At the end of the year, or whenever you wish to check your net worth, you can simply calculate the net worth based on the data you have recorded.

If you are looking for something a little less manual, there are dedicated net worth trackers available. Often these are single-function and don’t do much else.

Landlord Studio, on the other hand, allows you to easily track the value of your assets and also offers advanced reporting features alongside additional property management capabilities such as online rent collection, bank feed syndication, and tenant screening to make your job as a landlord as straightforward as possible.

This means that you can manage your rental property accounting (including tracking your income and expenses) while benefitting from additional features. Instead of juggling multiple apps simultaneously, you can track your net worth and manage your properties all from the same software.

person using calculator

What is a net worth statement?

A net worth statement is exactly what it sounds like, which is to say it is a report that outlines your assets, liabilities, and total net worth. As well as acting as an inventory for your assets and liabilities, it can also shed light on whether or not you are meeting your financial goals.

Instead of manually inputting this data into a spreadsheet, utilizing software like Landlord Studio can allow you to instantly generate professional financial reports at the tap of a button. The net worth statement is just one of over 15 reports that can be generated.

In isolation, one net worth statement may not be as insightful as you might imagine. Without anything to compare it to, it can be tricky to see whether you are on track with your goals.

To benefit the most from it, therefore, you should aim to run a net worth report on an annual basis. This will provide you with a bespoke financial snapshot that you can compare to performance from previous years. From there, you can plan for the future, whether that means acquiring more properties or branching out into unfamiliar markets, like the short-term rental space.

Final words

Not knowing your net worth won’t make you a bad landlord by any means, but it is a useful figure to be aware of, should you be interested in the financial health of your property portfolio. Running the tangible net worth calculation will give you an insight into your performance and reassurance that you are on track to meet your financial goals.

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