Calculating Your Profit And Loss
Written by The Landlord on 06 Nov 2007Buy To Let is a business, period.
Anyone that has a property on the rental market is running a business, regardless of how dislocated they are from the project. I know a lot of Landlords don’t see it as a business, but rather a long term investment which just ‘works’ on its own accord. While that maybe the case, the fact still remains that your investment required capital investment; in the short and/or long term you expect a good return, which is essentially the whole concept of any financial business. No one is in this game to come out at the other end poorer.
In order to measure the success rate of a financial business profit and loss needs to be measured. It’s extremely important for landlords to measure how much they are putting into the pot and how much they’re getting in return. If the business is running at a loss, what is the point of running at all?
How many landlords can tell me how much they spent on their investment in 2006? How many landlords can tell me how much they spent on maintenance over 5 years? I’m sure the numbers would be limited.
The extent of how deep you want to go with your analyse is dependent on how far you want to dig- the limit is endless. I try to monitor my investments to the level where I know what is going on e.g where my money is going. A lot of landlords don’t even track basic payments like rental income and mortgage payments. Tracking the basics is the bread and butter work every landlord should be doing; simply collecting the rent and making mortgage payments is only half of the work. It’s all good collecting rent and paying the bills, but it makes no sense if you’re doing it at a loss.
When I started letting a property, I wasn’t keeping on top of things, consequently I soon learned it was becoming increasingly difficult to track my expenditures off the top of my head. I would get so confused that I couldn’t even remember when or if my tenant paid her rent, and she was only paying on a monthly basis. It’s extremely easy to lose track of even the most basic payments. As a solution I constructed a very simple Excel sheet that calculated everything I wanted to know.
Here’s a snap shot of it (click to see full-size):
Like I said, it’s extremely simple. It basically holds basic information about the tenant and property (useful for those with multiple properties), and most importantly, calculates all my incoming and outgoing expenses, which ultimately allows me to get a net income. Everything automatically updates as I enter new costs. It doesn’t cover anywhere near as much detail as a real property geek would love to indulge in, but it suffices for the average Joe that just wants to look good and know the basics.
I’m going to make the spreadsheet downloadable so you can use it, or perhaps get inspiration from it. Anyone with Microsoft Excel can access the download. If anyone has any suggestions or modifications they would like to see in the spreadsheet, please let me know.
I’ve since developed more elaborate and complicated spreadsheets; once I’ve made them more userfriendly I’ll make them available to download.
Do you measure your success? If not, it’s about time you did.
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11 Comments - join the conversation...
Although i'm not really THAT organised; i'm pretty lazy also. Putting in a new entry takes about 1min, anyone can do it. It's designed for lazy people such as myself that don't want to monitor too much, but is up to date with the basics :)
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I would like to use your spreadsheet, however the download version has an extra column but the totals do not work.
Any chance of an update please
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The file has been updated.
Cheers :)
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Just found this website as I'm doing some prep work before taking the plunge into property investment. I want to learn as much as possible before setting out.
Great spreadsheet although isn't there something missing? - the capital invested in the property and the 'opportunity cost' of having that sum tied up in the property.
For instance, you should take into account any interest that you could have earned on the deposit, shouldn't you? Or is there a reason for leaving this off?
Cheers,
Pete
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I've developed my own spreadsheet, too. It's based around the principle of Double Entry (which is a bit OTT but it makes finding mistakes - and I make many! - really easy). The main functions I've got are:
+ Every transaction's got a ref. no so it's easy to find the supporting paperwork come tax assesment time;
+ The usual stuff about rent tracking payments, so you know what you have or have not had;
+ Cash Flow planning. You make some good points about making sure a landlord measures P&L, but cash is king. This helps to prevent overcommiting cash outwards, e.g. doing a renovation just before a tax bill is due and then going accidentally over-drawn or getting caught short for maintenance cash when a tenant is due to leave;
+ An analysis of Profit overall and Profit per Property;
+ Issue of receipts and invoices.
This level of analysis has done me fine over the years.
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Imitation is the sincerest form of flattery!
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I initially started this website because I wanted to document my every step from property idiot to property landlord,
in hope that people would find my site and help me along the way. I literally didn't have a clue about being a landlord
when I started this website.
its abit scary when I see how someone is so organised because you just have to be .. I started one and then i got abit side tracked :/ maybe this will motivate my lazy arse , or not
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