Profit and Loss Statement on Rental Properties.. Mortgage?

Question

When you write up your profit and loss statement, how do you break down the mortgage? Is the interest, taxes and interest the only loss? I'm assuming principal is not written in the loss category even though it goes against your cashflow. I'm trying to create a profit and loss statement for a seller financing deal. I currently have 5 mortgages but have not been great at keeping track of the details such as costs associated with each individual property. I tend to lump everything together. Any advice? Thanks in advance.

Nathaniel Aaron Chaney · Answer

So as far as the accounting is concerned you wouldn't put the principle in the profit and loss statement. The interest expense would be a "below" the line expense I.e. It is a non-operating cost. You'd put all the revenue from the properties first then you'd put all the expenses associated directly with the properties after that CoGS(cost of goods sold). Sum these and that's your Gross Margin. Next take out G&A and all operating expenses. Sum with Gross Margin and that's your EBIT (earnings before interest and taxes). Next subtract out interest expense and add in any interest income(probably none of that). That gives you net profit before taxes. Then subtract out tax expense. That final number is your Net profit or loss. The principle is accounted for on your balance sheet as you pay your loans you reduce your mortgage liability which increases your balance sheet.

Josh C. · Answer

Correct. Taxes and interest are expenses. Principle pay down is not. Which makes sense because it benefits you. I like to think of each month a few hundreds from each property goes into a little piggyback called my equity.

Porsha Fross · Answer

@Jake Baker do you have a good Excel or Google Sheets template for this?

Jhonny Remy · Answer

From an accounting standpoint, you can reduce your rental income by the taxes and interest you pay on your mortgage, but not the principal. You cannot deduct the whole cost of the property at once in your profit and loss statement as a lump sum. However, you can divide the cost of the property and expense it overtime as DEPRECIATION.When it comes to taxes, DEPRECIATION is a great source of savings. I would suggest that you talk to a professional so 1) your financial information is accurate and lead to good decisions 2) you don't miss out on any tax saving opportunity

Jake Baker · Answer

The principle of a loan is a liability account (money owed) so it would go on the balance sheet. Every month you likely pay a mortgage payment that includes:Principle paydown - Liability Account (Balance Sheet)Interest - Expense Account (P&L)Taxes & Insurance Escrow - Asset Account (Balance Sheet)Once a year, your Mortgage company will pay your Taxes owed and Insurance Premium - both Expense Accounts (P&L)

Matthew Pagan · Answer

I'm hoping someone will clarify...RentsAdvertising / Auto & Travel / Cleaning and maintenance / Insurance / Legal / Repairs / Supplies / Taxes / UtilitiesMortgage interestDepreciationFor long-term rentals...what would be an example of CoGS? And/or G&A that's not already included in your regular expenses? Assuming CoGs and G&A are zero...Revenue (rents) - operating expenses (Advertising + Auto & Travel + Cleaning and maintenance + Insurance + Legal + Repairs + Supplies + Taxes + Utilities + Mortgage interest + depreciation = Gross Margin (also your EBITD) ** Include interest and depreciation here?Gross Margin - interest = net profit before taxesnet profit before taxes - (federal/state tax expense) = final Net profit or loss** What about depreciation?Would you subtract depreciation just like interest to see your net profit before taxes?So would it look like this:Revenue (rents) - operating expenses (Advertising + Auto & Travel + Cleaning and maintenance + Insurance + Legal + Repairs + Supplies + Taxes + Utilities + Mortgage interest + depreciation = Gross Margin Gross Margin - mortgage interest - depreciation - taxes (federal/state) = Net profit or loss~ Matt

Ben Russell · Answer

I wouldn't include anything related to a mortgage. That is an acquisition cost that will vary depending on the buyers circumstances and thier finance situation.

Nathaniel Aaron Chaney · Answer

Yes initial investment of cash would go into your property asset column.So say you bought a house for 100,000 and you did 30,000 cash and a 70,000 mortgage the entry would be:DR. Property asset 100,000 CR. Cash 30,000 CR. Mortgage 70,000So your assets have gone up by 70,000 and your liabilities have also gone up by 70,000. And then as mortgage payments are made you increase your interest expense paid and decrease your mortgage payable liability. The initial entry only effects the balance sheet and keeps the equation assets = liabilities + equity in balance.

Christopher Phillips · Answer

@Nathan WatersJosh is correct. For "cash flow" calculations, yes. P&L, no.Reason being, the mortgage is debt service against the balance sheet since the mortgage would be a liability. The accounting entry would be debit to interest expense, debit to loan payable, debit to taxes, credit to cash.P&L would reflect rent as income, Less all the expenses, including property tax.

Nathan Waters · Answer

@Josh C. Thanks for the information. I appreciate it.@Nathaniel Aaron Chaney So where do you put an initial investment? Say I pay cash for a house or put down 30k? I'm assuming that also goes into assets on the balance sheet? I paid for quickbooks property manager over a year ago and never took the time to go through everything and input it. Its something I need to spend about a week working on.