The Profit and Loss Statement for Real Estate Made Easy

Uncover the savvy secrets of real estate investors: Learn how they harness profit and loss statements to unlock crucial financial insights, steering their decisions towards maximized returns.

Nichole Stohler
Last Updated
December 4, 2023
The Profit and Loss Statement for Real Estate Made Easy

Want to build wealth with rental properties but find profit and loss statements confusing? Mastering this fundamental skill is key to real estate investing success.

A profit and loss (P&L) statement offers insight into a property's finances. This guide will explain the details of real estate profit and loss statements and how investors use them to assess their business. You'll get clear examples and a step-by-step walkthrough to help create, analyze, and leverage P&Ls to understand your returns.

Let's demystify rental property P&Ls and discover how to tap into these powerful reports for profit-driving insights to grow your real estate business.

Understanding the profit and loss statement

A real estate profit and loss statement, sometimes called an income statement, is a financial document that provides a comprehensive overview of the income and expenses related to owning and operating a rental property.

It serves as a tool for investors to assess the financial performance of their rental property and make educated decisions regarding their investment. The statement includes sections for rental income, operating expenses, net operating income, and pre-tax net income.

By analyzing these components, you can use the P&L statement to evaluate the profitability of your investment monthly, quarterly, or annually — however often you want.

The 3 key components of a profit and loss statement

To learn how a profit and loss statement works, let's break down three key components: gross income, operating expenses, and net operating income.

1. Gross income

Gross income is the starting point of a profit and loss statement, representing the total revenue generated by a rental property during a specific period. Understanding and tracking gross income allows property owners to evaluate the earning potential of their investment.

The rent collected from tenants is the primary contributor to gross rental income for properties. This figure also includes any additional income streams, such as fees, late payment charges, or income from ancillary services. Gross income reflects the total inflow of money before deducting any expenses.

2. Operating expenses

Operating expenses encompass the various costs of a rental property's day-to-day management and maintenance. These expenses are deducted from the gross income to determine the property's net operating income (NOI).

Common landlord operating expenses include:

  • Advertising and marketing: Costs related to advertising vacancies and marketing the property to find tenants. It may include posting listings on rental platforms, signage, flyers, etc.
  • Technology: Expenses for landlord software, communication services, and other tech tools to manage the property.
  • Staffing: Any salaries, wages, and benefits paid to on-site property managers, maintenance staff, or other team members.
  • Insurance: Premiums for landlord insurance, rent guarantee insurance, and other policies to protect your investment.
  • Office supplies: Administrative expenses for office supplies.
  • Professional services: Fees paid for legal advice, accounting, consulting, and other professional services.
  • Repairs and maintenance: Costs to repair, maintain, and improve the property.
  • Property services: Expenditures for landscaping, pest control, trash removal, etc.
  • Taxes: Property taxes, taxes on rental income, and other taxes specific to your jurisdiction.
  • Utilities: Electricity, water, gas, and other utility costs.

Capital expenses

It's important to note that capital expenses are handled differently than operating expenses in a profit and loss statement.

Capital expenses are major investments that improve or extend the useful life of the rental property. These include renovations, replacing roofs or HVAC systems, appliance upgrades, and other substantial improvements.

Unlike operating expenses, which directly reduce net operating income annually, capital expenses are long-term investments depreciated over time for taxes and financial reporting.

3. Net operating income (NOI)

Net operating income is a metric derived from the profit and loss statement, representing the profitability of a rental property after deducting all operating expenses from the gross income. NOI is a key indicator of the property's operational efficiency and financial viability.

NOI provides a clear picture of the cash flow generated by the property on an ongoing basis. It allows investors to evaluate the return on their investment. Tracking NOI over time enables owners to identify trends and benchmark performance. Sudden drops in NOI may indicate problems that need addressing.

Investors often calculate the capitalization rate using NOI to determine a property's market value and expected rate of return on a potential deal. Lenders may also analyze NOI to assess the property's ability to support and service its debts.

Example of a rental property profit and loss statement

Let's explore a detailed example to better grasp the mechanics of a profit and loss statement for a rental property. For this scenario, we will use a hypothetical duplex rental property.

Revenue breakdown:

The duplex's primary revenue source is the monthly rent collected from tenants. Properties also might receive income from other sources, such as from pet fees or parking charges. In this example, the duplex generates additional income from parking fees.

  • Rental income:
  • Tenant A: $1,200/month
  • Tenant B: $1,100/month
  • Additional income from parking fees: $200/month

Operating expenses breakdown:

Operating expenses cover various costs associated with managing and maintaining the property. Our example includes everyday operating expenses to illustrate how to factor these elements into the P L real estate statement.

  • Property management fees:
  • Monthly management fee: $150.
  • Maintenance and repairs:
  • Regular maintenance: $75/month.
  • Repairs (non-recurring): $500.
  • Utilities:
  • Water and sewer: $50/month.
  • Electricity: $80/month.
  • Insurance and taxes:
  • Property insurance: $60/month.
  • Property taxes: $150/month.
  • Miscellaneous expenses:
  • Legal fees: $100 (non-recurring).

Net Operating Income (NOI) calculation:

You can now calculate the net operating income by deducting the total operating expenses from the gross income.

Gross income:

  • Rental income: $1,200 + $1,100 = $2,300/month
  • Additional income: $200/month
  • Total gross income: $2,500/month

Total operating expenses:

  • Property management fees: ($150) = $150/month
  • Maintenance and repairs: ($75 + $500) = $575/month
  • Utilities: ($50 + $80) = $130/month
  • Insurance and taxes: ($60 + $150) = $210/month
  • Miscellaneous expenses: $100 (non-recurring)
  • Total operating expenses: $1,165/month

Net operating income (NOI): $2,500 - $1,165 = $1,335/month

This example showcases how a rental property's profit and loss statement transforms raw financial data into a meaningful representation of the property's financial performance.

Calculating CAP rate

The capitalization rate, or CAP rate, is another useful metric real estate investors calculate from the P&L statement. The CAP rate measures the rate of return based on the income generated by the property.

To calculate, divide the NOI by the property's total value or purchase price:

CAP Rate = Net Operating Income / Property Value

For example, based on the $1,335 NOI calculated for our duplex, if the purchase price is $300,000, the CAP rate would be:

CAP Rate = $1,335 NOI / $300,000 Property Value = 0.0445 or 4.45%

The CAP rate helps investors evaluate the potential return from a property based on its price and income-generating ability. The higher the CAP rate, the better the expected return on investment.

When should you run a profit and loss statement?

Regularly reviewing a profit and loss statement is key for effective financial management of your rental property. Analyzing income and expenses provides insights to make decisions to increase your property's net operating income.

Here are some recommendations for when to run a P&L statement:


A monthly P&L gives a snapshot of the property's finances for that specific month. It helps spot trends, cash flow changes, or irregularities quickly so you can take timely action if needed. For example, you may adjust rents, address excessive costs, or find new revenue sources.


A year-to-date (YTD) statement summarizes financial performance from January 1st through the current date. The extended timeframe allows you to identify long-term patterns and evaluate the effectiveness of strategies implemented during the year.


An end-of-year P&L is an important document to have handy when tax season arrives. It provides comprehensive details on rental income and expenses to file taxes accurately. The statement captures annual income, deductions, and depreciation for tax reporting purposes.

Beyond taxes, the year-end statement also allows for a bigger-picture analysis. Reviewing the full 12 months helps you evaluate the property's overall financial health and ROI. It guides strategic decisions for the new year ahead, such as adjustments to rental rates, budgets, or investment plans to maximize returns.

So, the annual P&L serves two critical needs: accurate tax filing and assessing the property's performance to guide future financial plans. This year-end overview is valuable for rental property owners as a compliance tool and financial planning resource.

Real estate profit and loss statement

A profit and loss statement helps rental property owners evaluate the financial performance of their investments. By tracking key components like income, expenses, and net operating income, P&Ls provide visibility into the health and profitability of your real estate business.

Regularly reviewing your rental property's financial calculations uncovers opportunities to optimize returns through strategic adjustments to rental rates, cost controls, or new revenue streams. It also serves as the foundation for tax planning and compliance. The payoff is gaining metrics, trends, and insights to make smart financial decisions that maximize rental income.

Whether you run your P&L monthly, annually, or on other schedules, it delivers the information you need to take your real estate business to the next level.

Profit and loss statement FAQs

What role does a profit and loss statement play in tax planning for real estate?

The profit and loss statement is important for tax planning and reporting. Property owners can prepare tax returns efficiently and assure compliance with tax regulations by accurately tracking income, deductions, and depreciation.

What should I do if my profit and loss statement shows a loss?

If your profit and loss statement shows a loss, you can evaluate your expenses and revenue strategies to identify areas for improvement. Consider adjusting rental rates, reducing operating costs, or exploring new sources of income to optimize profitability.

Nichole Stohler

Nichole co-founded Gateway Private Equity Group, with a history of investments in single-family and multi-family properties, and now a specialization in hotel real estate investments. She is also the creator of, a blog dedicated to real estate investing.

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