What Is a Rental Property Income Statement?

Most new real estate investors jump into this industry without really knowing the ins and outs of real estate investments. Unfortunately, this gung-ho attitude contributes to their financial downfall.

With that said, you do not have to be Warren Buffet to run a rental property. In fact, you can be an absolute novice and still be successful. 

Here are the basic principles of a rental property income statement that will help you get a good grasp of the income statement.

Understanding rental property income statement

A rental property income statement is a financial statement that shows the income and expenses of a rental property. 

The statement is divided into two main sections: income and expenses. 

The income section shows the amount of money that was collected from the tenants, while the expenses section shows the amount of money that was spent on the property. 

This statement can be used to help property owners measure the financial performance of their rental property and make adjustments to increase profits.

For the investor, what is the importance of a rental property income statement?

When you are in the market to purchase a rental property, you will want to request the rental property income statement from the seller. This document will outline the income and expenses of the property for a set timeframe. 

It is important to review this document because it can tell you a lot about the property and how it has been performing.

The rental property income statement will show you how much income the property has generated and how much money has been spent on it. This information can give you a good idea of how profitable the property has been. 

If the property has generated a lot of income, then you can feel confident that it has been a good investment. However, if the property has generated a lot of expenses, then you may want to look into it further before making a purchase.

The rental property income statement can also tell you about the property’s current condition. If the property has generated a lot of income, it is likely that the property is in good condition. 

However, if the property has generated a lot of expenses, it is likely that the property is in poor condition.

Overall, the rental property income statement is a valuable document that can give you a lot of information about a property. Review this document before making a purchase so that you can make an informed decision.

Creating a rental property income statement

The first step in creating a rental property income statement is to calculate the total rental income for the property. This is done by multiplying the rental rate by the number of days the property was rented. 

Next, calculate the total expenses for the property. This includes the costs of repairs and maintenance, advertising, property taxes, and any other costs associated with owning and operating the property.

The final step is to subtract the total expenses from the total rental income. This will give you the net income or loss for the property. This statement can be used to track the profitability of the property over time and to assess the financial health of the property.

What should you account for in a rental property income statement?

There are a few things you should account for when drawing up a rental income statement. The most obvious expenses are the property’s mortgage payments, property taxes, and insurance premiums. 

You should also account for any repairs or maintenance that is necessary to keep the property in good condition. If you have a property manager, you should include their fees in your statement as well. 

Finally, you should estimate how much you will spend on advertising and vacancy costs.