Investing in real estate is highly recommended by financial experts, given the underlying value it possesses. However, finding the right real estate to invest in can be quite challenging.
When it comes to investing in real assets, most of us are concerned with how the interiors and the surroundings look. However, one of the most important things that you should evaluate is the real estate income statement.
The real estate income statement is one of the most important financial reports used by real estate investors to analyse and assess the merit of holding a real estate asset.
It helps owners figure out the amount of income a real estate property is generating and how it is doing so. In addition, it lets you evaluate important metrics such as income, expenses, net operating income etc., from real estate investing.
A real estate income statement can be treated as a profit and loss statement for the property. Some of the most commonly used income statements in real estate are as follows.
This is the most common P&L statement that depicts the income, expenses, and profit and loss for each calendar year.
A year-to-date statement will show metrics such as income, expense, profit, and loss from 1st January of that year up until the previous month (depending on when it has been requested).
Suppose you have requested a year-to-date statement on 7th July. You will get the statement from 1st January till 30th June of that year.
The trailing 12 months statement calculates the income, expenses, profit or loss for the last 12 months from the date it is requested on. The real estate finance for the last year can be easily tracked using this statement.
The month over month statement is used to depict information regarding income and expenses at the end of each month. It is useful for tracking monthly progress.
Reviewing the real estate investment statement is important to understand and evaluate the earnings from a given real asset. It can help you guide your future investments better.
Reviewing your real estate income statements entails individually evaluating the contents of the income statement that include metrics like income, expenses, net income, etc.
If you are looking to invest in a property that could generate a good passive income, you must take the components of the real estate profit and loss statement into account.
The real estate income statement is a profit and loss statement that is exclusively created for that asset. It will contain all elements of a regular profit and loss statement. However, it will be about the real asset in question.
The structure of this statement includes income, total income, expenses, total expenses and net income.
Suppose that your real estate property generates USD 5000 from rent and USD 500 from interest income. Your total income will be equal to INR 5500.
Now, let’s assume that you have spent USD 1000 on repairs and maintenance and USD 800 on utilities. Your net income here will be USD 3700.
This quick guide was to understand what a real estate financial statement entails and the aspects you should evaluate before investing in real assets.
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