how to keep track of net worth

13 Replies

After reading many books on personal finance, a common recommendation is to keep track of your net worth. I like the idea of this.  For me, RE investing is about CASH FLOW to grow and sustain the business and NET WORTH for purchasing power in retirement.   As such, I have set goals both in cash flow and net worth.  But how do you all track your net worth.  I tried using excel, but I feel like it gets cumbersome with the incomes, depreciation, asset values... etc involved with owning RE.  Is there something cleaner that is good for a monthly summary or do I just need to stick it out with excel? 

very interested in the replies to this. 

There are many ways to track your net worth, but overall, they boil down to two simple options:

1) Record everything manually in a giant spreadsheet or other program

2) Automate the process, at the cost of either money or divulging sensitive information.

I've chosen option 2.  I use www.mint.com.  Mint records every transaction, every bank account, everything that has to do with money online. I still have to do some maintenance, but as far as accurately tracking net worth goes, I have a great picture at all times, and review the numbers comprehensively once per month.  The "cost" of this free software is that they use my financial data to recommend and market financial products to me.

A lot of folks are wary of using a program like that and trusting software with sensitive financial data.  If that's you, then recording the data line by line, or paying someone to do that for you is your other option.

Income and expenses are fairly straightforward for the most part.  Categorizing them into their appropriate buckets is called accounting, and must be done no matter what if you want to get useful information out of tracking your net worth.

You also touch on depreciation as one of your expense questions.  Depreciation is one of the trickier parts of accounting, especially when it comes to calculating your net worth.  If you buy a $100,000 property and depreciate it over 30 years, then on paper you are describing a "loss" of $100,000.  But the reality of the situation is that the property still has value - perhaps it's now worth $50,000, perhaps it actually appreciated and is worth $150,000.  In most cases, the property will be worth substantially more than the book value you claim it to be worth on your tax return.  

Depreciation is a great accounting trick and expensing that against your income is great for taxes.  When it comes to calculating your net worth (or valuing a business with depreciating real estate assets), it's less useful.  You'll have to keep a watchful eye on the market value of your property if you want to have an up to date and accurate snapshot of your current net worth.

thanks for the great replies.  I tried mint.com a few months ago.  Filled everything out and got pretty excited... Till I tried to sync my bank Accts.  I use a few local banks that are unable to sync.  So I would then have to manipulate things on a spreadsheet to then keep mint accurate which defeats the purpose and I stopped using mint and just went back to excel.  

I use both mint and personalcapital.com. Both sites have different syncing capabilities... Maybe personal capital would be a for for you!

One caveat: you may be contacted by a portfolio manager with a sales pitch. Hey stop bugging you if you say no early.

I don't have a fancy spreadsheet or online tool, just a personal financial statement.  Two columns, two pages.  Page 1 is essentially an income statement - incomes vs out- flows.  The next page is a balance sheet - assets vs liabilities.  Net worth is at the bottom of pg 2 along with net income.  No depreciation on mine. Once you have created one, it's easy to update. Lenders love it and it's usually a requirement to submit annually on commercial loans. Back when I was borrowing money the bank would ask "is that all you need to borrow?" It's not fancy, just states clearly where you're at.    

QuickBooks

I track ours in Excel every week.  Once you get the sheet built it is pretty easy to maintain.  You can also build custom functionality as things get harder to track.  As you acquire more assets things definitely get harder to track.  

@Dustan Marshall

  depends on what purpose your tracking the net worth for.

As @Steve Vaughan mentions if its for the purpose of securing lending from a bank they are going to want to see financial described exactly as Steve mentioned and they are going to want to see them at Book   not blue sky values. We all have Blue sky properties.  but they really like to see TRUE CASH equity or retained earnings put back into the bottom line.

If its just to make you feel good then you can track it however you want and assign any ARV you want... Every market ARV means something else.. in high value areas like West coast and bigger A class markets ARV can be accurate.. however those that invest in lower end C class or so mid west properties ARV is a WAG at best since the sale would usually only be to another investor not someone buying retail ( and your ARV values are usually retail)..

so keep all that in mind when thinking what your net worth is or is not.. many times depending on the asset net worth is the cash you have in the bank.. the asset is just a money generator.

One of the basic rules in accounting is having an accounting system that simply shows an accurate financial position as the need arises. No one has a need for a balance sheet daily or weekly on an ongoing basis. It is a monthly statement and when there is a specific need such as a request for a loan.....but even then the last monthly statement is sufficient.

Analysis by newbies is most often overkill, it is made more complicated than the real benefits derived from it, that is not an efficient accounting system. Really, depreciation is a know factor of a capitalized item and it is appropriate annually for taxes. You could break it down to the hour and by the time you get your answer, it's outdated!

It would probably be more appropriate for small investors, assets of less than a million, to look at their statements on a quarterly basis, not even monthly because the purpose is to track progress, see where you stand and there isn't really going to be any great financial change in 30 days. Most are just making busy work for themselves, or to look busy or playing show and tell.

Look up "change in financial position" it's an accounting statement that goes with your income and balance sheet, that is what you are more concerned with and looking at that every six months is sufficient for most any real estate investor/operator in reality. :)

thanks for the great Responses.  I am mostly concerned with keeping track of this information for both purposes mentioned.  1- to ensure I am making progress (which doing quarterly would suffice).  2- for lending purposes.  When applying for a loan and annually for the commercial loans I hold it is required.  But quarter will suffice here too.  

I like the idea of only doing it quarterly so I can see the change and frankly, it less work.  But as such,  with the local banks I use. I guess I will stick to excell and try to simply if into terms of: income, assets, liquidity and liabilities.  

@Dustan Marshall

  for your banks Quick books is all you need... it shows the picture exactly how the bank wants to see it.

Mint.com is the best choice in my opinion. One aspect that many people "cheat" on is putting a higher actual value on their properties than they can actually sell for

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