What to really consider
How many costs do I have to enter?
The Real Estate income statement is an indispensable tool for assessing whether an investment is profitable.
There are many types of income statement, drawn up in different ways – depending on the type of real estate investment to be made and set in the most convenient form for those who prepare it.
But let’s see in more detail how to prepare a real estate income statement and which are the most common cost items.
Below are the 12 main cost items that you should always consider in a real estate income statement.
1 – Resale price
At what price do you intend to resell a property with certain characteristics in a certain area?
This is the starting point of all the reasoning behind the valuation of a real estate investment.
2 – Purchase price
The maximum purchase price at which the investment is profitable (plus all other cost items) and beyond which you absolutely must not push yourself.
3 – Agency commission for real estate purchase
In a Real Estate income statement should not miss this entry!
Building up a team of so-called signalers is crucial. And real estate agents are masters in finding juicy real estate deals.
Your job is to make friends with them and pay their commissions to get more and more real estate for your investments.
4 – Notary/Lawyer public
There’s no escaping from here.
The notary’s or lawyer’s fee will always be an item to be included in your real estate income statement.
5 – Restructuring
Adding value to a restored property is key to increasing the value perceived by the potential buyer.
6 – Architect / Surveyor
The real estate investor is a job that leads to operate with old buildings, and to make them attractive to modern man many times it is necessary to change the planimetry.
So here comes the figure of the architect – or that of the surveyor – who will be responsible for presenting the changes to the land register, the communication of the start of work and so on. Even a good new interior design would fix, sometimes.
7 – Property management costs
In the real estate income statement will always be present the costs related to:
- Condominium expenses
Surely you will not live there and sell it in the shortest time possible, but in the meantime the renovators will need active users in the apartment to be able to carry out the work and the necessary changes.
In addition, you will have to bear the costs of the condominium for the entire period in which the property is in your name.
8 – Taxes
Taxes are the costs incurred to purchase the property. Based on which kind of Property you’re buying, taxes would be calculated by the Agency – or by the Notary.
9 – Unforeseen events
It is very important to predict the unexpected.
Real estate investment is the type of investment preferred by many because, in addition to being able to see and touch – literally by hand – their investment, most of the contingencies are easily predictable and therefore accounted for.
With experience you will get, investment after investment, more information that will help you to predict – depending on the circumstances – any unforeseen events that could ruin the entire real estate investment.
A properly prepared real estate income statement takes into account a whole range of possible unexpected costs.
10 – Agency commission for real estate resale
Reselling the property with an agency is definitely the most effective way to get a great result from a real estate investment.
The cost of the real estate brokerage service will be amply repaid by the rapid resale times.
Not to forget the subsequent succulent operations that they themselves will report to you, precisely because they are aware that you will reward them with an endless sequence of assignments.
11 – Profit
The only profit is the profit you get from the real estate transaction.
The real estate income statement is there to get you here. Find out how much you’ll earn on an investment.
The profit is the forecast of the profit (in euro) that you will obtain when the investment is concluded.
12 – ROI and ROE
ROI and ROE are two key financial performance indicators.
ROI (Return On Investment), indicates the return on investment in relation to the total value of the investment itself.
ROE (Return On Equity) indicates the profitability of the investment considering only the capital used to make the investment.
Well, you’re ready to go. Start your first income statement, let’s see if it works!
If you need some help, just call us and we’ll help you to get through your objectives.