Think to yourself, why did you get into real estate? We’re willing to bet that the added cash flow is one of the big reasons. We’re also willing to bet that you dream of the day that you can tell your W2 employer that you’re done. It takes grit and determination to scale, but it also takes strategy and organization. In reality, we’re not all natural business experts. That’s why we’re here to help you with some basic income and expense management knowledge.
For example, when you receive your first rent checks and see those big numbers deposited into your account, it’s natural to think that you are making lots of money. Now it’s time to pump those breaks because there are a lot of different places that cash needs to flow.
Looking Beyond the Immediate Increase in Cash Flow
You need to consider how your income gets applied to your books. For this example, let’s break down a $45,000 purchase price with 1,500.00 per year in taxes. This unit rents for $700.00 per month. To protect yourself, you keep insurance of $50 per month.
A Simple Break Down of Income and Expense
To review, here is the example.
- Purchase price: $45,000.00
- Interest rate on your loan: 4.0% over 30 years
- Monthly payment: $214.84
- Monthly insurance: $50.00
- Monthly taxes: $125.00
- Monthly rent: $700.00
Total income after expenses: $310.16/month
As you can see, the money from your rental income is quickly dispersed to many areas that are necessary for running a proper real estate business.
The Importance of Income and Expense Management
RentMindMe automatically records every payment you receive as income. Expense management is where you’ll need to be mindful of how your business is performing.
Aside from the expected expenses like insurance and taxes, you need to prepare for the unexpected. For example, if your unit’s water heater breaks down, you’ll need to replace it — fast. Tenants without hot water are going to be very unhappy. The average water heater costs between $400.00 and $500.00 at The Home Depot. It’s wise to store away emergency funds to cover these unexpected maintenance costs, which will happen from time to time.
Rental units present many ups and downs in profitability. As you scale you’ll have more available cash to deal with unexpected maintenance issues. So your goal should be scaling. When it comes time to seek financing to scale, you’ll need to have an understanding of your expenses. Your lender will too, that’s why RentMindMe allows you to run profit & loss reports.
Recommended Cadence for Analyzing Your Income and Expense Reports
In order to know whether you are successful, you have to understand your numbers. Having a system in place from the start is a great way to ensure that you start off on the right foot and set yourself up to scale.
Gaining a clear picture of your financial status is one of the benefits of working with rental management software. The more information you enter into the system, the better your reports. RentMindMe.com helps make income and expense reporting seamless so that you can be more productive and efficient in the management of your properties.
To learn more about how easy rental management can be, schedule a 20-minute demo with one of our team members. You can also sign up for a 60-day free trial to give it a shot for yourself.