Buy-To-Let is a business, period.
Anyone that has a property on the rental market is running a business, regardless of whether they push all the day-to-day responsibilities onto a letting agent and dislocate themselves from the project.
I know many Landlords don’t see it as a business, but rather a long term investment which just ‘works’ on its own accord and runs in the background. While that maybe the case, the fact still remains that your investment required capital investment, and in the short and/or long term you expect a good return, which is essentially the whole end-game of any financial business. No one is in this game to come out at the other end poorer and uglier.
In order to measure the success rate of any profiteering business, expenses need to be tracked. 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? More worryingly, what if you don’t know if you’re running at a loss?
How many landlords can tell me how much they spent on their investment in 2006? How many landlords can easily 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 limits are endless, and you could essentially beat the numbers to death. But the average landlord that has a social life, or life in general for that matter, will have no interest in digging too deep. The basics will suffice; knowing the incoming and outgoing costs and expenses.
I try to monitor my investments to the level where I know what is coming in and what is going out. A lot of landlords don’t even track basic payments like rental income and mortgage payments. Tracking the basics should be the bread and butter work for every landlord should be doing. Despite popular belief, there’s more to being a landlord than simply collecting the rent and making mortgage payments. 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, particularly the ‘numbers’, because numbers aren’t fun or glamourous, right? But I soon learned it was becoming increasingly difficult to track my expenditures off the top of my head, I would frequently find myself in a right mess. I would get so confused that I often couldn’t even remember when or if my tenants paid their rent. It’s extremely easy to lose track of even the most basic transactions, even if there’s one or two to follow per month. As a futile, yet somewhat useful solution, I devised a very simple Excel sheet that calculated everything I wanted to know.
Like I said, it’s extremely rudimentary. It won’t win any awards for innovation.
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 to see what’s going in and out, what state my finances are in. Everything automatically updates as I enter new costs. It doesn’t cover anywhere near as much detail as a real property enthusiast/professional would love to indulge in, but it suffices for the average Joe that just wants to feel good and know the basics. If you’re looking for something a little more advanced and sophisticated, you might be better served at the landlord software section– there’s a whole range of extremely powerful solutions, most of which will even calculate your tax returns for you.
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.
Do you measure your success? If not, it’s about time you did.
Disclaimer: I'm just a landlord blogger; I'm 100% not qualified to give legal or financial advice. I'm a doofus. Any information I share is my unqualified opinion, and should never be construed as professional legal or financial advice. You should definitely get advice from a qualified professional for any legal or financial matters. For more information, please read my full disclaimer.