Rental accounts: which unit is feeding you, and which one are you feeding

Hook

To landlords, I often ask one question: of the units you hold, which one earns the most? Nine out of ten cannot answer. Not because they do not understand — because nobody ever put them on one table together. Today we build that table.

Decide one thing first: in whose name

The first fork: collect rent in your personal name, or set up an investment holding company? This lesson does not tell you which is better. That depends on how many units you hold, how long you intend to hold them, and who you eventually intend them for — everyone's answer differs. But one rule applies either way, and the third lesson covered it: rental money and your own money cannot share one account. One account, one set of books. Without that step, none of the tables below can be produced.

One property, one cost centre

The backbone of this lesson is one line: one property, one cost centre. The chart of accounts has to split by property — the dimensions idea from the fourth lesson. Each unit gets its own column so you can see: rental income; the interest on the loan — and note, the principal is not an expense, it is debt repayment; quit rent and assessment; management fee and sinking fund; repairs, agent commission and insurance. One column per unit, and only then can you answer "which one earns the most". Push the rent from three properties into one "rental income" account and however accurate the books, that question can never be answered.

The portfolio sheet: eight columns is enough

No system needed. One Excel sheet, one row per property, eight columns. Purchase cost and purchase date — you need both to work out the gain and the real property gains tax. Today's market value — an estimate is fine, updated once a year. Outstanding loan principal — market value less outstanding principal is your equity. Monthly instalment and monthly rent — put the two side by side and you see whether it covers itself. Tenancy expiry date — start looking for a tenant three months ahead rather than waiting until it is empty. Annual costs. And the last column: status — tenanted, vacant, or for sale. Eight columns. Half a day to build, updated once a year.

Three numbers to work out

With the sheet built, work out three numbers. One, the rental yield: annual rent divided by purchase price. Then compare it against your loan rate — a yield below the rate means, put plainly, that you are feeding the property with interest. That is not necessarily wrong, but you should know you are doing it. Two, the net yield: after deducting the annual costs and the vacant months. Most people only compute the first one, which is why they always feel they earn more than they do. Three, how much it has appreciated: today's market value divided by purchase cost. That column leads straight into the next subject.

Sell today, how much real property gains tax

Real property gains tax is tiered by holding period — the longer you hold, the lower the rate. And the bands differ between individuals and companies; a company does not get the individual exemption. The rates may be revised in any year, so this lesson gives one principle only: work it out before you sell, not after you have signed. With the purchase cost and purchase date on the sheet, that figure takes five minutes. Without the sheet, you spend three days digging through old documents — and the buyer will not wait three days.

Rental paperwork and e-Invoice

The last section, on paperwork. A rent due schedule: who should pay on what date, when the money actually arrived, and how many days late. A table, not memory — the same principle as the schedules in the fortieth lesson. Statements: produced when the tenant asks. Corporate tenants especially will ask, because they need it for their own accounts, and it also affects your own tax classification (the forty-eighth lesson). And self-billed e-Invoices: where the tenant is a company and the landlord an individual, the tenant usually issues that invoice on your behalf. What you have to give them is the correct particulars — your TIN and your identity card number. Get the particulars wrong and they cannot issue it, and the rent gets stuck there. How to look these up and record them is covered in the fifty-sixth lesson.

To close

In summary: separate the accounts first; one property, one cost centre; an eight-column sheet updated once a year; compare the yield against the loan rate; work out the real property gains tax before selling; and give the correct particulars. Holding several units and never had a single table? LTT will build that table for you — books split by property, so you can see at a glance which one is feeding you and which one you are feeding. Grab a coffee first and talk about your business. For the accounting, come to LTT. I am LTT, helping SME bosses get their accounts straight. Follow us, and see you next time.