Introducing Stessa’s New Rental Property Balance Sheet

Rental Property Balance Sheet
by Devin Redmond, posted in Stessa News

While the invention of the balance sheet accounting report is widely credited to a 15th century Franciscan monk, Stessa’s new rental property Balance Sheet is the result of a joint effort between our Product, Success, and Engineering teams. No illuminated manuscripts were involved, just some Excel spreadsheets, a lot of investor input, and a few healthy internal debates.

The Balance Sheet was released earlier this week under the “Reports” button on the Transactions page, just below the Income Statement and Net Cash Flow reports.

This essential accounting report for rental property owners provides a quick snapshot of assets and liabilities, including market values for all properties, bank and escrow account balances, and outstanding loan amounts, among other key details.

Rental Property Balance Sheet

As is often the case with real estate investors, everyone likes to see their assets, liabilities, and equity through their own unique kaleidoscope. Some investors track balance sheet items religiously themselves while others rely heavily on their CPA to do the math once a year. Some calculate “book value” as a function of depreciated cost basis, while others like to see current equity figures based on market value assumptions.

We solicited feedback from active Stessa users via the Community Forum and then distilled the many comments and suggestions into this first iteration of a balance sheet for real estate. We fully expect that additional tweaks, changes, and additions will follow in the weeks and months to come.

Assets, Liabilities, & Equity

It’s worth noting that the Stessa Balance Sheet is focused on current value, not “book” value or depreciated basis. Whereas some balance sheets track book value as it declines over time due to depreciation write-downs, the Stessa Balance Sheet pulls current market values from each property to include under the assets section. Also included under assets are current bank balances as imported from connected financial accounts and escrow account balances held in trust by lenders.

As you might imagine, the liabilities section of the report includes outstanding mortgage and other loan balances, along with security deposits being held in trust on behalf of tenants. This section also includes any outstanding credit card balances on accounts linked to Stessa.

The difference between assets and liabilities as reported on the Balance Sheet, is shown as equity. This can also be interpreted as estimated liquidation value (before fees like commissions, transfer taxes, etc.) were an investor to sell all assets and close out all accounts related to the real estate portfolio in question.

Why the Balance Sheet is Important

Real estate investors often place a lot of emphasis on cash flow. Concepts like cash on cash return and cap rate get plenty of attention when analyzing results and making projections. This can sometimes obscure the here and now, and that’s where the balance sheet can help put things into perspective.

The balance sheet is simply a snapshot of where things stand at a given moment in time. Other than a faint ripple effect on a bank account, the balance sheet has nothing to reveal about an outlier heating bill from last February or an insurance premium reduction six months ago. More than any other financial report, the balance sheet brings reality into focus, for better or worse.

Perhaps most importantly, the balance sheet provides deep insights into how well a given portfolio might hold up when the ride gets a bit bumpy. How much implied equity exists when current market values are lined up against outstanding mortgage balances? How much cash is on hand to make debt payments? When paired with our Stress Test report, the Balance Sheet is the quickest and most honest way to answer these questions and feel confident (or not) about an uncertain future.