Spreadsheets are the goto tools for landlords for accounting. The main reason they are very popular
is because most landlords have some sort of spreadsheet software (e.g., Microsoft Excel,
Apple Numbers, Google Sheets, etc) on their personal computers or as a cloud service accessible
via modern web browsers. Spreadsheet softwares are well known from a really long time and in fact,
Apple introduced the first spreadsheet software in personal computers as early as the 1980s. They
require minimal training and a simple Google search for “rental property spreadsheets” shows a
number of pre-built and freely downloadable spreadsheets specially made for landlords. The
disadvantages of spreadsheets far outweigh the advantages they have. We have made a list of the
most notable disadvantages of using spreadsheets for landlord accounting and portfolio performance
tracking.
Prone to errors
Introducing an error in a spreadsheet can be very easy and can go unnoticed. To record rental
income and expenses and summarize them one has to manually type in formulas and numbers into the
cells of a spreadsheet. Fat fingering a number, a formula or accidentally moving rows or columns
can cause permanent damage to the results of your spreadsheet and depending on the size and
complexity of the spreadsheet it will take hours to fix the damage done. In fact, a study done by
the University of Hawaii has revealed that close to 88% of spreadsheets have errors in them even
after careful development. Such mistakes lead to miscalculations in budgets and distorted balance
sheets. In other words if you’re hoping for accuracy then don’t expect to get it from spreadsheets.
Inhibits landlords from following best practices for record keeping
Real estate investments provide more tax benefits than almost any other investment. But tax
deductions for your real estate investments are only as good as the records you keep to back them
up. Any deduction you forget to claim on your tax return, or lose after an IRS audit because you
lack adequate records, costs you dearly. For example a $100 in unclaimed deduction costs $25 in
additional federal income taxes for an average midlevel-income investor who falls in a 25% tax
bracket.You need just two types of records for tax purposes:
1. A record of your income and expenses.
2. Supporting documents for your income and expenses.
Most landlords record an income or expense in a spreadsheet however they fail to reference
supporting documents for the recorded transaction. This is simply because anything you do with
spreadsheets is manual work and cannot be automated and therefore landlords chose the easier path
of not referencing supporting documents in their spreadsheets. Deviating from accounting best
practices may seem to be the easier alternative but it comes back to bite later on when an IRS audit
happens as it results in losing valuable tax deductions.
Pre built spreadsheets available online are bad
By performing a simple Google search landlords can get many links to pre built rental property
spreadsheets and this is probably one of the ways you ended up reading this blog post! Most of
these spreadsheets are no good as they fail to calculate some of the key metrics that are essential
for a landlord like cash on cash return and cap rate that determine the return on investment. They
are designed for a fixed number of units or properties and if tomorrow you buy another property you
have to start with a new spreadsheet altogether because extending your existing spreadsheet will be
hard unless you understand how it is built in and out. Having multiple spreadsheets means you cannot
calculate metrics across your portfolio for instance calculating net cash flow on a portfolio that
includes all your properties would be difficult. Thats a huge disadvantage because as a real estate
investor you must know the financial health of your portfolio and make sure it is putting money into
your pocket and not emptying it.
Can be lost
With spreadsheets the responsibility of backing up your data is on you. If you fail to do that one
day you might end up losing everything when your computer crashes or someone accidentally deletes it.
Modern cloud based spreadsheets accessible from web browsers automatically back up your data and
can be recovered if deleted accidentally. These are newer technologies and are still evolving so
don’t expect it to have all the features that you see on your desktop or laptop version.
Not mobile friendly
Spreadsheets are not mobile friendly. Entering and viewing data of a spreadsheet on a small screen
is very hard without zooming in and out multiple times or making a few mistakes. They are already
prone to errors as discussed above and operating it on a mobile device will make that worse. Stay
away from spreadsheets if you like the convenience of doing everything on the go on your mobile
device.
Limited ways of visualizing data
Spreadsheets almost always organize data in tabular fashion. Very rarely do we see spreadsheets
having bar charts, pie charts or line charts. That is because spreadsheets are fundamentally not
built for it. Visualizing data in different ways is so powerful and that gives a better insight
into what is going on with a real estate business that is otherwise hard to know with data laid out
in tabular fashion. A simple example is a line chart that displays net cash flow with income and
expense categories over time. It’s hard to build a solution for that in spreadsheets.
Lack of integration
Spreadsheets don’t integrate with other services. For examples, it’s not possible to integrate
with an email service and start receiving email alerts for expiring leases that are being tracked
in spreadsheets, it is not possible to connect spreadsheets to a rental checking account or a credit
card account and pull transactions automatically and it is not possible to connect to Zillow and
have your spreadsheet automatically pull the market value of your property available as
Zestimate.
Cashonplex.com is built by real estate investors who started their journey using
spreadsheets, learned from their disadvantages and pivoted to build a modern, effective and easy to
use software service that requires zero training. On signing up, onboarding your first asset is a
simple 3 step process that takes less than 5 mins. It is integrated with a leading and trusted
financial API provider called
Plaid and can
automatically pull transactions from checking accounts, savings accounts and credit card accounts
across most banks in the US and Canada. Plaid helps pull transactions from bank accounts safely and
securely and is used by other popular consumer apps like
Venmo and
Robinhood. Landlords connect their rental
checking accounts or credit card accounts to the platform and every transaction that is pulled has
a reference to a transaction in the corresponding bank statement and without any extra effort you
have supporting documents ready for the pulled transaction which makes it far more superior to
spreadsheets with less work. Cashonplex calculates cap rate, cash on cash return, net cash flow and
other key metrics and beautifully presents them on a portfolio dashboard with different types of
visualizations. Unlike spreadsheets you don't write a single formula to generate this dashboard.
Cashonplex.com is built on modern day cloud infrastructure provided by
Google Cloud and your data is backed up
regularly so that we are able to recover quickly when a disaster happens. Cashonplex offers lease
management, tenant rent reports and other features so sign up today and explore the product.
Cashonplex.com is 100% free to use for 2 months - no credit card required.
Sign up now to start a free trial.