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Investors in the property business have three basic tools with which they measure how well their investment is faring in the market or make predictions about the future of their investment. To not use these tools properly is like jumping into the sea without a buoy to save a sinking chest of gold. Call them financial statements, and you are a couple miles away to becoming a better landlord.

One of the three financial statements we will consider here is the profit and loss statement (P & L), the other two being balance sheet and cash flow statement.

Definition of P & L Statement

The profit and loss statement or income statement is a summary of the revenue and expenses of a company or an investor over an accounting period. P & L statement contains two very important parts known as operating and non-operating sections. While the operating portion “discloses information about revenue and expenses as a direct result of regular business operations, the non-operating section discloses revenue and expense information that are not directly tied to a company’s regular operations.” Read “What is an Income Statement?” on Investopedia.

Now, we will head over to what you should expect to see in the operating portion of an income statement.

• Location/Name and Size of Property: You will find these at the top of the statement document. For example if Mr. XYZ bought 1,000 square feet of property at Chapel Hill, Heswall, Bournemouth, CH1 1BB, these information would be clearly indicated.

• Property Price: This part contains the price at which the investor acquired the property under existing market conditions.

• Income: It is a calculation of the sum of the monthly or annual revenue of a property investor when expenses have not been deducted. This is your rent money minus expenses.

• Expenses: You should see all of the expenses incurred during the course of operating your business. An income statement for a property investor would typically contain the following:

1. Taxes: When you buy a property in the UK either through mortgage or without it, you will be expected to pay tax. A property, whose price is worth over £125,000, attracts a Stamp Duty Land Tax, except in Scotland. The current tax year, which started from 6 April, 2016 to 5 April 2017, will attract an additional 3% on each Stamp Duty band.

You should also see your income tax, which is a calculation of a percentage of your revenue payable to the government for being a landlord. The current tax rates and allowances will determine how much you can pay.

2. Utilities: Here, you find the cost of electricity, water, heat, and sewer added up, which has been incurred over a specified period leading to the income statement. While some tenants prefer to pay their utility bills, landlords may opt to include the bills in their expenses as a way to woo tenants.

3. Insurance: It’s a record of the cost incurred in protecting your house over a certain period. You may choose to insure your property alone or to include landlord insurance in your financial plan. Learn more about insurance at AXA Insurance.

4. Management Fee: If you paid an investment manager to manage your property, you would have to pay him and reflect this on the income statement.

5. Maintenance Reserve: Your property may need renovating, and you are obviously going to pay for it. You should also look for this in your P & L statement.

6. Vacancy Reserve: Sometimes, your newly acquired property stays vacant for a couple of months or even years. Vacancy reserve affects your rent, so make sure you spot it within the P & L statement.

The last parts are committed to your total expenses, which is a sum of all the expenses, and your net income (your total revenue minus your total expenses).