If you’re new to real estate investing, there’s one important document that you should have knowledge of, and that’s a landlord statement, also known as an owner statement. It’s a useful financial tool that can give a landlord an idea of how a rental property is performing, as well as provide essential specs to pass along to an accountant. The statements are typically produced monthly and list items such as how much income was generated, expenses, and other important details.
Overall, a landlord statement can help keep things in check when it comes to the property owner maintaining their return on investment (ROI) and cash flow. With that said, let’s dive in for a closer look at owner statements, what’s included in them, and a few tips for analyzing and putting these statements to good use. We’ll begin by taking a look at a more in-depth definition:
What is a Landlord Statement?
Landlord statements are detailed financial documents that play a big role in properly managing a rental and keeping profits on track. You’ll find transactions that are related to a rental property in an owner’s statement, including income from rent, owner withdrawal summaries, expenses for maintenance, repairs, utilities, and other typical costs associated with property upkeep.
These statements can summarize the financial health and performance of a property and provide a clear breakdown of money coming in and going out. This allows landlords to gain an understanding of the profitability of their properties, as well as track cash flow, and prepare for taxes.
They can also be used for transparency, allowing tenants to see how their payments are being used, which can help in dispute resolution. Also, landlord statements are used for strategic decision-making, like pinpointing patterns in expenses or even justifying rent increases. The bottom line is to ensure everything makes sense financially and that it’s also legally compliant.
Owner statements may be created by the landlords themselves, as well as property managers, who then provide a detailed report to the property owners. That said, you’ll find that the reports can differ based on who’s compiling the information and generating the reports. They may also differ based on what software is being used. Here are two landlord statements to give you a visual:
Components of a Rental Owner Statement
A landlord statement can be considered the backbone of property management because, as I touched on above, they offer an itemized account of where every dollar goes and comes from. So, as you can imagine, all elements listed are of equal importance. Although the items that appear on a landlord statement may vary, there are typically at least four main components, which I’ll list below:
1. Rental & Other Income:
- Rent Collected: The amount of rent that was received from renters during the statement period.
- Late Fees: Charges that were paid when a tenant pays rent late.
- Other Income: This might include utility reimbursements, pet fees, or parking costs.
2. Property Expenses:
- Maintenance & Repairs: Costs for fixing or maintaining the property.
- Utilities: The expenses paid for water, gas, or electricity, if not billed to tenants directly.
- HOA Fees: Association fees that are applied to caring for the neighborhood.
- Vacancy Costs: When an owner has a loss of rental income due to periods not being rented out. Those who are unfamiliar with vacancies should head over to my article on the topic – Do Vacancy Rates Matter in Real Estate Investing?
- Property Management Fees: If a management company is hired.
- Insurance: These are payments for property or landlord insurance costs. Every rental property owner should have insurance – take a moment to read my post – Understanding Landlord Insurance: What Does It Cover?
- Taxes: Property taxes paid during the statement period.
- Legal Fees: Costs associated with legal issues such as evictions.
- Administrative Costs: Office supplies, software, or other management expenses.
3. Owner Distribution:
- Owner’s Draw: This is a profit withdrawal where the landlord compensates themselves. I highly recommend reading my article titled, How to Pay Yourself as a Real Estate Investor, to ensure you make the proper distributions.
4. Balances:
- Beginning Balance: The starting financial position from the last statement.
- Ending Balance: The net balance after all income and expenses are accounted for in the period.
- Security Deposit: This includes updates on the status of tenant security deposits. Get more knowledge on deposits from my article – Safeguarding Your Investment: Understanding Tenant Background Checks and Security Deposits.
Reviewing and Analyzing Landlord Statements
Just as it’s important to have monthly owner statements generated, taking the time to analyze them is crucial since dissecting the reports can help an investor recognize if the property’s financial health is in good standing or not.
For instance, a report may show HVAC repair costs within multiple months, which would be costly. This being brought to light can lead to the recognition that the old HVAC system may need to be upgraded, which could save costs in the long run.
Or, the owner’s monthly statements are repeatedly showing vacancy costs, which could lead to a loss of thousands of dollars. In this case, if there’s a property management company in charge of bringing in new tenants, the owner may want to ensure that this company is a good fit, or if another PM should be brought in. As you can see, a landlord statement can be very helpful in keeping a property on track with the owner’s financial goals.
Statements such as these are pretty straightforward and simple to read, so any landlord should be able to read the reports and have a good understanding of how a property is doing month by month. However, there could be some abbreviations that may cause some confusion. Below, you’ll find common abbreviations these reports may contain:
Common Abbreviations Found on a Landlord Statement
- YTD (Year to Date): Totals for income or expenses from the start of the fiscal year to the date of the statement.
- MoM (Month over Month): Comparison of financial data from one month to the previous month.
- A/R (Accounts Receivable): Money owed to the landlord by tenants.
- A/P (Accounts Payable): Bills and invoices the landlord needs to pay.
- ROI (Return on Investment): An indicator of the profitability of the property investment.
Tips for Reading and Using Your Owner Statement
A few basic tips for making good use of your landlord statement would be to schedule regular reviews – don’t wait until tax season to begin combing over the reports. Also, make sure to compare statements, look at MoM or YTD numbers to get a feel for trends or fluctuations that can impact your bottom line. Also, always question discrepancies, especially when a PM is providing your landlord statements. Keep in mind that you should be using your owner statements to gain financial oversight, make good business decisions, and make sure the long-term profitability and management of your rental properties are going as planned.
Utilizing a Property Manager for Creating Your Rental Statements
Most landlords hire a property management company to handle all aspects of their investment, and creating owner statements is just another reason why it’s a good idea. A property manager assigned to a rental is the one who deals with collecting rent, enforcing late fees, paying repair companies, and the like. Because of this, they’re well aware of the financial aspects of that particular property. This makes a PM better suited to pull all the monthly financial specs together to generate an accurate landlord statement.
In addition to this, many PMs have years of experience so they are easily able to ensure all landlord statements comply with local laws and cover all the necessary deductions, expenses, and income, which can be beneficial come tax time. If you’re not familiar with the concept of using a property management company to care for your rentals and your tenants, it will be worth the time to read the following articles below:
- Why Using a Property Manager Will Place More Money in Your Pocket
- The Ultimate Guide to Residential Rental Property Management
Maximize Your Investment Performance with a Landlord Statement
An owner’s statement is not just helpful, but also essential and should be used by any landlord who wants to keep their profits, ROI and cash flow on track. Landlord statements are almost always used by professional property managers and experienced investors, so that alone shows it’s worth adding them to your investment strategy.
If you’re an investment property owner looking to sharpen your skills when it comes to landlord statements, I hope this article has helped you increase your knowledge of the subject. Also, if you’re working toward bulking up your portfolio with another cash flowing rental property, feel free to contact the team at Morris Invest.
We can discuss your goals and also provide you with details on our new construction properties that are located in lucrative areas that boast thriving economies. We also assign an experienced property manager who’s well-versed in generating landlord statements. On top of this, our team will place a vetted tenant in your rental property, so you won’t have to worry about it.
Morris Invest has worked within the real estate industry for many years now, and so we’re experienced in moving forward with strategies that maximize profits and grow portfolios. With that in mind, make sure to reach out if you’d like to hear more about investing in a rental property that will perform well and increase your ROI. In the meantime, dive into our power resources below that can help you become a successful investor and grow your wealth:
Before you go, take a personal tour of one of our new construction rental properties:
