How to calculate Financial Net Worth of A Landlord?

Financial net worth is the most important number for the landlord.

Financial Net Worth Gives Power to the landlord!

Experienced and successful landlords are all about net worth. After some years into your landlording career, more often than not, you would start observing your net worth ballooning because of appreciation of your real estate. That’s when all your skepticism would evaporate. Suddenly you would start feeling confident in all your landlording activities because of the changed scenario.

Activities like –

would come easily to you. You would see yourself making quick decisions on the different issues. That’s the power of increased net worth. This is the time you would also start thinking of leveraging equity and appreciation accumulated in your properties to buy another property.

Realization of your increased net worth would do wonders to your psyche.

Track Your Financial Net Worth

There may be many ways to track your financial net worth. What I am going to show is the very simple way to do it.

In simple terms, the Financial Net Worth is what is owned minus what is owed. For an individual, the financial net worth is the difference between the value of all the assets and the total of all liabilities.

For the landlord, the definition does not change.  The financial Net Worth of the landlord comprises of –

1 Individual net worth

2 Value of all the investment properties minus Liabilities-mortgages

To calculate, there are many fancy templates available online, some free of cost and some paid. In this blog post, I’m going to suggest the simplest and free of cost templates.

ICloud Numbers

Over the years, I used to put my numbers on paper to do the estimates of my net worth in an old-fashioned way after every 3-4 months. In the recent years, I have started using this free of cost ICloud number templates to do my math.

This template provides a facility to simplify all your numbers and bring up the net worth in easy calculation and in colourful presentation!

There are 3 different section to this process.

  1. Assets
  2. Liabilities
  3. Overview(or Result)

1.  Assets

This is an example of the assets part of this template.

 

 

Assets Part of the Financial Net Worth Calculation
Assets Part of the Financial Net Worth Calculation

 

 

As you can see, you can list all your assets here(liquid, real estate, jewellery etc.) and It’ll show you the percentage distribution of your assets.

2. Liabilities

This is Liabilities part of the template.

 

 

Liabilities Part of the Financial Net Worth Calculation
Liabilities Part of the Financial Net Worth Calculation

 

 

All your liabilities are listed here. Which includes all mortgage, loans, Credit Card, Line of Credit etc.

3. Overview – Result

Finally, the above inputs will all be mixed up automatically and you would see the resulting Financial Net Worth number in the Overview section of this template.

 

 

 

 

 

the resulting Financial Net Worth number
the resulting Financial Net Worth number

 

 

If you have all your numbers ready with you, this exercise is a matter of a few mins.

The strategy of keeping up-to-date

I’d suggest you make a file and start doing this exercise today. I’d also strongly recommend you to do this exercise every 3rd month. This exercise will induce enthusiasm in you to remain focused to grow in your landlording business.

Why it’s beneficial?

I have listed few benefits of doing the math of the Financial Net Worth on a regular basis below.

1.Increased Involvement

You have to always remember one thing. Even if you are a full-time landlord, it’s usually not the round-the-clock activity. Many times, your repairs and fixing are done by the hired agencies. It takes efforts to remain involved in your landlording business especially once your property and tenants are set and do not have any reason to bother you. Any activity you undertake that increases your involvement, would work in your favour. 

Doing the calculation of your Financial Net Worth on a regular basis is one of that activity.

2. Getting a clear Idea which way your fortune heading

As you know from the above calculation, this calculation involves the present day value of your property. Yearly analysis of financial net worth numbers will give you a clear picture of your resulting wealth.

3. Helps your remain focused to maintain the optimum growth

If your resulting wealth is increasing, you would be inspired to take more risk and add more properties to your portfolio. If real estate prices are coming down or moderating, you’d take a cautious path. Because of the numbers at your fingertips, you are able to clearly figure out what is in your best interest.

4. Can assist you in finding resources for further growth.

Once you realize you have accumulated a pool of equity plus appreciation, your mind will be in overdrive status to find a way to use this to your advantage. It’d just take a couple of meetings with good mortgage advisers or bank to figure out how to use the pool of equity and appreciation to add another property to your growing portfolio.

5. Helps you plan an exit strategy as and when necessary well in advance

Once you have achieved your desired result, you’d sit on your success and enjoy the fruit of your hard work. But, there’d come a day when you’d start thinking of retirement. Your financial net worth calculation will trigger your thoughts to plan your exit at some point in your life. Exit from your landlording business requires a very careful planning.

 

Conclusion: The Financial Net Worth is this most important number for the Landlord. The above article is about the most simplified way to calculate it. We’ll see another way to do it in a bit sophisticated manner in my blog post on Personal Capital.

 

 

 

 

 

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