Yearly Income Report – Fiscal Year 2012 Profit and Loss

This is my profit and loss statement for my 5 rental properties for fiscal year 2012.  I wanted to post this (and will continue to post quarterly and yearly P&L statements) in the interest of full disclosure.  To me, real estate is the best of all possible investments but you have to remember, real estate pays you in 6 different ways, only 2 of which show on the typical Quickbooks profit and loss statement.

FY 2012 FY 2011
   Reimbursable Expenses 736.29 200.00
   Rental Income 42,951.74 37,384.33
     Discounts/Refunds Given (441.38) (425.00)
     Late Fees 1,260.00 268.00
   Total Rental Income $43,770.36 $37,227.33
   Returned Check Fees Collected 20.00
Total Income $44,526.65 $37,427.33
Gross Profit $44,526.65 $37,427.33
   Bank Charges 297.50 20.00
   Insurance 2,652.48 1,825.65
   Insurance – Business use of hom 10.10
   Legal Fees 518.00
   Meals & Entertainment 31.86
   Mortgage Interest 14,916.62 11,238.32
   Office/General Administrative E 38.00
   Other Miscellaneous Service Cos 500.00
   Property Management Fees 1,381.76 1,860.21
   Property Taxes 9,595.64 7,359.09
   Repair & Maintenance 9,767.79 3,112.19
     Supplies / Hardware 166.87 9.85
   Total Repair & Maintenance $9,934.66 $3,122.04
   Taxes / Licencing 150.00
   Utilities 2,142.02 1,978.61
Total Expenses $41,630.64 $27,941.92
Net Operating Income $2,896.01 $9,485.41
Other Expenses
   Depreciation 14,290.73 10,799.82
Total Other Expenses $14,290.73 $10,799.82
Net Other Income $(14,290.73) $(10,799.82)
Net Income $(11,394.72) $(1,314.41)

1.  In Quickbooks, “Net Income” is not the same is “Net Operating Income” which is a better metric for measuring the performance of a property.  Net Operating Income does not include the cost of financing as an expense, Net Income in Quickbooks however does.  To calculate Net Operating Income (NOI) I would have to remove both the “Mortgage Interest” and “Depreciation” expenses.A few things to note:

2.  My properties had a depreciation expense of $14,290.72 in FY 2012.  This is calculated as 1/27.5 of the initial value of the property (minus the land) and can be counted for tax purposes as an expense, just like maintenance or management expenses.  This is one of the great benefits of real estate, you can effectively write off depreciation as an expense even though that money doesn’t actually come out of your account.  For tax purposes, I am able to claim a loss of $5,600.11 (see Net Income) even though without counting depreciation it was actually a gain of $8,690.61.

3.  Lastly, in real estate most people (including myself) invest for “Cash Flow” which is simply the amount of money that goes into your pocket (or leaves your pocket) each month or year.  Again, Quickbooks has some trouble with this calculation since the portion of rent that goes to pay down mortgage principles is not included on the P&L statement.  It is included on the Balance Sheet but since it’s not an expense, is not on Profit and Loss.  Therefore, Net Income ends up being quite a bit less than “Positive Cash Flow” since I would have to subtract all debt princlple pay-downs from Net Income to get Cash Flow.

In summary, I was about Cash Flow Neutral for FY 2012 but got to write $5600.11 off of my income  as a business loss.  Real estate is about the long-term investment.  2012 was a rough year for the rentals (some vacancies and some large capital improvements) and I’m satisfied by just breaking even this year.

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