Real Estate Profit And Loss Statement
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- November 13, 2019 Updated
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As a business owner, you must always know how your business is performing financially. When updated regularly, profit and loss statements provide critical information about the financial health of your company. This information is then readily available to review and to share with other stakeholders as you make decisions important to your company’s success.
For owners in the real estate business, our Real Estate Profit And Loss Statement Template is an excellent tool for remaining financially informed. It’s formatted specifically for real estate businesses, is easy to use, and is easily understood.
This article will go through the template and help you to understand how you can use it to operate your business more effectively.
Before we begin, we need to explain some things about the template’s design.
First, the template assumes that your real estate business owns and operates rental properties. It is structured to allow you to track rental and sales activities on your properties and the profits or losses that result.
Also, it presumes that the rental and purchase/sell activities are all for your business’s benefit. In other words, you do not manage rental properties for other owners. Nor do you engage in the buying and selling of properties other than your own.
The template is designed to provide you with a “short-form” of a profit and loss statement. It tells you how much money you are making (or losing) each month, but is not intended to take the place of formal, accrual-based financial statements. Therefore it should not be used as your primary reporting mechanism for borrowing or income tax purposes.
And, while similar, the profit and loss statement is not a cash flow statement. A cash flow statement tracks the flow of monies in and out of your business, and provides a beginning and ending cash position.
The Real Estate Profit And Loss Statement reports income, expenses, and operating profit from your business activities, allowing you to gauge the effectiveness of your business operation. Both are useful but serve different purposes.
With these qualifying statements out of the way, let’s look at the form.
Here you see that the form covers a twelve-month period. It provides profitability information on a monthly basis and aggregates the monthly results into a final “Full Year” column.
The template is constructed as an Excel program. Therefore, you will need Excel on your computer to use it. Also, it is formatted to print in Landscape Mode (left-to-right). The example above is shown in “Portrait” (up-down) and may seem a bit small. However, once filled in and printed out (or observed on the computer screen) in the intended Landscape format it is easily read. You can always adjust the “View” of the template in your Excel program.
The “Full Year” column automatically tracks your results as the year progresses. The example below tracks activity through the first four months of 2019, and you can see how the form provides not only monthly but also year-to-date results.
Real Estate Profit and Loss Statement Example
We’ve chosen the name, “ABC Realty Company” for our fictitious company.
As you can see, we’ve used January 1, 2019, as our starting date. The report will terminate on December 31, 2019.
The form does not have to begin on January 1st. It covers twelve consecutive months so you can initiate it anywhere during the year you choose. It will then track activities over the next twelve months, regardless of your year-end date.
The form consists of four distinct reporting areas:
- Net Rental Income provides the monthly operating profit/loss from the company’s rental properties. Note that there are three “Other” lines where unusual or unique income or expenses can be entered. In our example, we collected $500 application fees in January and March from new renters. Also, it shows that one or more of our renters paid a $50 Service Charge during three out of the four months detailed.
- Property Sales and Interest is the next section. This section displays both income and expenses. It is important to remember that expenses entered into this section need to be “negative” (or “-“) numbers. Entering them as “positive” (or “+”) values will render the calculated results inaccurate.
In our example, we sold a property in March for $55,000. The property had cost only $45,000, but our $10,000 profit was diminished by closing costs ($2,500), Sales Taxes ($1,500) and Recording Fees ($500). Thus our net gain on the sale was $5,500.
Our Rental Income was $5,709. When combined with our gain on the sale of the real estate of $5,500, our total Gross Profit was $11,209 for the month of March.
“Gross Profit/(Loss)” summarizes the operating profit from rental and sales operations.
“Gross Profit/(Loss) %” shows the percentage return on revenues, before Operating Expenses.
- Operating Expenses are the monthly costs of your office and operation. The list of expenses is reasonably inclusive, but there are two “Other” lines available for occasional or unique expenditures.
Remember that while “Depreciation” is an included expense, it is not a use of cash. It is an accrued expense, typically accumulated on the balance sheet as an offset to the asset value of your properties. Nevertheless, it is an important expense to include for tax purposes and is therefore included in the template. The depreciation expense in our example was reduced in March and April as a result of the sale of our property. The expense would rise again should we acquire another property in the future.
Also in this section, observe that payments for “Bank Costs and Interest” are included. In our example, we’ve taken out loans from a lender to fund some of our properties. Interest payments on this debt are expenses and are necessary for the calculation of the monthly/month-to-date profit/(loss).
You may also note that dividends are not included in the template. This is because dividends are not normally tracked in a company's profit and loss statement. Rather they are an item that affects the company's balance sheet.
- Before and After-Tax Profits are shown in the fourth section. The “Profit/(Loss) Before Taxes” line indicates the summation of all the activities included in the first three sections.
The “Profit/(Loss) %” line shows that month’s gross rate of return on all income sources. Note that is it negative during January and February because our costs exceeded our revenue. However, it improved in March and April as our revenues increased. These numbers are automatically calculated in the aggregate in the “Full Year” column.
“Taxes” are entered as you earn profits. These will be estimates for taxes you will owe based on your earnings. The taxes shown in the example assume a tax rate of 25%.
“Net Profit” reveals profit/loss after Taxes, and Net Profit/(Loss) %” shows after-tax return on revenues.
For purposes of our example, we have assumed that the months of May-December are still in the future, and therefore are not relevant to our results to-date. To improve readability, those columns have been ‘hidden’ but they are still part of the template. The last “Full Year” column shows how the template accounts for aggregate monthly progress during the year.
There, we can see that through April, the business in our example has covered all its costs and generated a Net Profit After-Tax of $1,471. A good start to the year!
When used faithfully, The Real Estate Profit And Loss Statement allows you, the business owner, to know exactly how your business is progressing through the year. Not only are you made aware of recent results, but you are also shown the cumulative effect of your activities. You can use this information to make adjustments regarding your operations while problems are still manageable, and opportunities are still available.
We wish you the best in your business activities and know that the Real Estate Profit And Loss template can help assure your success.
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