When you’re investing into real estate, you should know how to track your budgets and proformas. You should have PNLs (Profit & Loss) and you should know exactly what your upside is going to be. This way you can put together an exit strategy, which is really important. You ideally want to have all of these pieces together before you actually purchase the property.
If you don’t have these things together, it makes things difficult to find and actually execute on the investment. But more importantly, once you have all of these things organized and you’ve purchased a property, you have it under your own management. Something that we’re always working on and improving everyday is keeping track of all of the accounting. It’s time consuming and there are a lot of pieces to it. It’s best to use an accounting platform to actually keep track of everything that you’re doing once you complete your acquisition. Continue reading to see how to track your budgets and proformas.
You need to keep track of your income category, which is going to be your rental income. That’s going to be important to track. You want to keep track of all your residents who are paying you rent and make sure they’re paying on time. You’re also going to have late fees and pet fees to keep track of, if you accept pets. There are also other expenses. This includes forfeited deposits and damages that occur at the property that you may deduct from security deposits. All of this is going to be your line items for income. You might even have laundry income or you might have valet trash. There might be other cool amenities that you offer and charge for so you would also put them into your income category.
So after your income category, you’re going to have your expenses. For the expenses, this is a little bit of a longer list. You’re going to have payroll at the property and maintenance. You’ll also have work orders from your teams that are going to have to repair, especially as the property ages.
If you are going to have someone else manage the property, you’ll have to add that cost to the expense category as well. You’ll also have capital expenditures. These are expenses that are going to be invested into the property, whether it’s a roof repair or a sidewalk or an entry door. All of those are capital expenditures are your property.
There are tons of expenses that go into it. Other expenses, such as unit renovations and your mortgage, would be listed under your net operating income.
Income & Expenses
Net Operating Income
To calculate your net operating income, take your income and subtract your expenses. Under your net operating income, you’ll want to list other expenses such as your mortgage, renovations, or any capital expenditures that are outside of the scope of operating the property. These are the three layers of income and expenses that you need to have when you’re putting your property together and keeping track of everything. There are more expenses that you have to keep in mind, such as utilities, insurance, and property taxes. This is certainly not all of the expenses at your property, but this is a general idea of what you have to figure in and keep track of. You have to make sure you have all of these categories in order, because that’s going to determine how much money you’re going to make at the property.
Now, you’re going to have a line item for cash flow. That’s going to be what you earn passively from your property. Then, you’re going to have your upside potential to renovate your property.
Let’s say you do unit renovations. Your rents are going to increase so your properties are going to appreciate to a higher value, which is going to allow you to cash out those numbers once you get to that point. But there’s a lot of things that go into the accounting for your property. You have to keep all of these things in mind because they’re really important. It’s going to determine your success rate. The best way to be successful investing into real estate is to know your numbers. You have to know how much you’re operating your property for, what everything is costing and how well it’s working. Then analyze, adapt, and make everything more efficient. You can navigate better when you know your numbers and figure out how you can increase the value of your investment and make more money.
This is how to track your budgets and proformas. It’s a necessary skill to have because you need to know where and how you will be spending your money.
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