And now what? A tool to find out

This post is the continuation of yesterday’s post.

So far we’ve figured that there’s nothing we could have done differently back then (apart from not buying of course!). But maybe there’s something we can do now, in our renting process, in order to break even and maybe make a little bit of money. It’s basically a matter of having more money coming in and less money coming out. We also have to take into account that making more money can create more expenses: taxes is the best example but the same thing is true with the management agency’s fees and the unpaid rent insurance since they are both proportional to the amount we charge our tenants.

I wanted to be able to play with the figures and see right away how it affected our actual profits, our profits as defined by tax laws, the amount of taxes it implied depending on which tax plan we used, and so on and so forth. So I built my own tool in a spreadsheet.

The basic information has to be typed (in orange on the screenshot) but most of the complicated figures are automatically calculated through formulas based on the basic information. For instance, if you type the rent in, it automatically calculates the expenses in management and unpaid rent insurance. If you type in the number of times there was a change in tenant, it automatically calculates the total fee you paid the agency to look for new tenants.

So basically, you can type in:

• the rent (the sheet is designed to account for one or several rent amounts as you can decide to raise or lower it, especially when a new tenant comes in or at each rental contract’s anniversary),
• the number of rent payments received (to account for changes in rent, vacancies and unpaid rents),
• the number of tenants (to account for the agency’s fee as explained before),
• the amount paid in owner’s insurance (this is a fixed price, it usually goes up every year),
• the amounts charged by the community of owners from both buildings (they bill you every quarter),
• the unexpected expenses (like a radiator that breaks down and needs to be replaced),
• the owner’s tax (fixed amount calculated by the local tax agency),
• the loan payments (distinguishing capital from interests and loan insurance, we received this information by mail when we started paying back the loans).

You also have to type in the information that is used in the formulas such as commission percentages. Separating it from the formulas themselves makes modifications much easier.

• the percentage charged by the management agency,
• the percentage charged for unpaid rent insurance,
• the income tax percentage that applies to your family situation (in France, it’s different depending on whether you are married or single, it’s usually higher for non-residents, it’s lower for people with kids…),
• the fee that an accountant would charge you if you needed his/her services (depending on the plan you choose for your tax return).

The information that is calculated automatically through formulas using the basic information that you typed in is:

• income,
• management fee,
• search for tenant fee,
• total agency’s fee,
• unpaid rent insurance,
• total insurance,
• total community expenses,
• total unexpected expenses,
• total expenses,
• total deductible expenses,
• actual profits before tax,
• profits before tax as defined by tax laws,
• amount to write down on tax return for either plan,
• income tax to pay in either case,
• actual profits after tax.

In tomorrow’s post, I’ll tell you the results I found by playing around with this tool.