In the management of income producing real estate assets, we know unnecessary costs need to be cut from operations. We know expenses should be reduced when possible. We know we should take full advantage of additional income streams and increased rents and fees to increase revenue. When these tasks are performed correctly, the income potential of a property will be maximized.
As an investment property owner, you need to know everything about the financial condition of your properties. Hiring the right property asset manager who will maintain and increase the value of your assets and who will provide accurate, detailed financial reports so you can track your financial goals is vital.
Here are six financial reports your property manager should be providing you with every month:
- Balance sheet: This is a snapshot of the financial position of a property as of the date of the report. It is a summary of the assets, liabilities, and equity of the owner. At a glance, you will see actual balances in bank accounts, total delinquency and vacancy amounts, security deposits held, the sum owed to others, ownership distributions made and much more.
- Monthly income and expense statement: This report should have a month-to-date and year-to-date detailed breakdown of income and itemized expenses with a comparison to the budgeted numbers. When created and used properly, a budget is your guideline to the operation of your asset. You should be able to expect the property to perform according to that budget. Being able to compare actual to budget figures lets you know if the budgeted goals are being achieved.
- General ledger: This provides a detailed record of individual transactions that result in the total numbers reflected on the balance sheet and income and expense statement. Each entry should be self-explanatory. Question your manager if you see numerous corrections in various accounts each month or frequent entries to a clearing account with vague descriptions.
- Accounts payable report: This should include all payments made during the reporting period for debts and other financial obligations. The goal is to provide a clear audit trail for all funds for each property. Look for a company that keeps and is happy to provide you with copies of all invoices.
- Tenant receivables and prepaid report(s): This ledger details individual tenant delinquent and pre-paid accounts that are summarized on the balance sheet and income/expense statement.
- Copy of monthly bank statements with reconciliations: These will substantiate the bank account balances reflected on the balance sheet as well as deposits and debits reflected on the general ledger.
These types of financial reports are provided so you, the property owner, can avoid unnecessary expenses and losses and so you ultimately retain full control over your assets.