Financial Statement Prep for Property Sale

When a property owner opts to sell, the financial statements included with the sale typically act as the conduit connecting the seller’s aims with the buyer’s confidence

A clean, accurate, and well‑structured set of statements can speed up the sale, reduce negotiation friction, and help the seller claim the best possible price

Presented below is a practical guide for preparing those financial statements, from essential inclusions to the subtleties of tax and regulatory compliance

1. Identify the Audience

The initial step is to think about who will review the statements

Potential buyers include individual investors, homebuyers, institutional lenders, and real‑estate investment trusts (REITs)

Although the core information stays consistent, the depth and format can vary

For example, a real‑estate developer will want detailed cash‑flow projections, whereas a private buyer may focus on historic rent rolls and maintenance costs

Tailor the presentation to meet the expectations of your target buyer group

2. Gather Core Data

Collect the following key data sets, ensuring you have records that cover at least the last 12–24 months

Purchase price history and significant capital improvements

end dates, escalation clauses, and security deposit balances

- Operating expense records: utilities, property taxes, insurance, property management fees, repairs, and capital reserve contributions

Mortgage statements and loan amortization schedules, if relevant

- Tax returns (both property and income) for the last few years

Insurance policies and any claims history

- Any pending litigation or zoning issues

Having a complete data set reduces the risk of surprises during due diligence

3. Pick the Correct Statement Types

You must create at least three essential statements for a property sale

Profit & Loss Statement – Displays operating income, expenses, and net operating income (NOI)

Balance Sheet – Offers a snapshot of assets, liabilities, and equity at a specific moment

- Cash Flow Statement – Illustrates the inflow and outflow of cash, especially useful for buyers evaluating financing options

Also, think about adding a Rent Roll Summary, a Capital Expenditure (CapEx) Log, and a Tax Summary

These additional documents enable buyers to explore further without overloading them with raw data

4. Create the Income Statement

Begin with gross rental income: total rent collected during the period

2. Subtract vacancy and credit losses: estimate a realistic vacancy rate (often 5–10% for commercial properties; 2–5% for residential) and any bad‑debt write‑offs

Remove operating expenses: utilities, taxes, insurance, 名古屋市東区 不動産売却 相談 maintenance, property management, marketing, and any additional recurring costs

Compute Net Operating Income (NOI): the figure remaining after operating expenses but before debt service and taxes

5. Subtract any debt service (principal and interest payments)

Add or subtract any non‑operating income or expenses (e.g., sale of equipment, one‑time legal fees)

7. Arrive at Net Income: the figure that indicates profitability after all costs

Present the income statement in a clear, columnar format with amounts in the primary currency

Insert footnotes for any unusual items or one‑time expenses

5. Create the Balance Sheet

Assets:

Current assets include cash, accounts receivable, security deposits held in escrow

Fixed assets: property's fair market value less accumulated depreciation (include the depreciation schedule if the property is depreciable)

Other assets include intangible assets such as leasehold improvements

Liabilities:

Current liabilities include accounts payable, accrued expenses, short‑term debt

Long‑term liabilities: mortgage balances and deferred tax liabilities

Equity:

- Owner’s equity: purchase price, retained earnings, any capital contributions

Verify that assets equal liabilities plus equity

Add a short narrative explaining significant items, like pending appraisals or lease renewals

6. Draft the Cash Flow Statement

Divide the cash flows into three categories

- Operating activities: cash from rents, less operating cash outflows

- Investing activities: cash spent on capital improvements, purchase or sale of ancillary assets

Financing activities: mortgage payments, new debt issuance, or equity injections

Illustrate how cash balances evolve over the reporting period and emphasize any periods of negative cash flow that could be a warning for buyers

7. Build the Rent Roll Summary

Detail each tenant, lease start and end dates, rent amount, escalation terms, security deposit, and any other special clauses

Highlights:

- Current occupancy rate

How close leases are to expiration

- Rent growth trajectory over time

A tidy rent roll can assure buyers of income stream stability

8. Build the CapEx Log

Add a chronological list of all major capital expenditures over the past few years: roof replacements, HVAC upgrades, parking lot resurfacing, etc.

List the cost, date, and purpose for every entry

Buyers often use this to assess future maintenance needs and to calculate the replacement reserve

9. Summarize Tax Information

Offer a concise tax summary

Property tax assessments and history of payments

- Income tax returns (if the property is held in a corporate structure)

Any tax credits or incentives, for example low‑income housing credits or energy‑efficiency rebates

If the sale is expected to be a gain, add an estimate of capital gains taxes

This assists buyers in accounting for potential tax liabilities in their offer

10. Check Accuracy and Consistency

Check all figures across the statements

For example, the net cash inflow from the cash flow statement should match changes in the balance sheet’s cash account

Employ a spreadsheet to automate these checks and flag discrepancies

11. Add Narrative Explanations

While figures represent part of the story, narrative context can offer clarity

Details:

Reasons why expenses spiked (e.g., a costly roof replacement)

Any lease renegotiations that changed rent schedules

- Market trends influencing rental rates

A well‑written narrative can pre‑empt buyer questions and exhibit transparency

12. Format for Readability

Use a simple, professional layout