As your rental property portfolio continues to grow, it can become increasingly difficult to answer basic questions such as how much equity you have and what your monthly cash flow is. That's where a Schedule of Real Estate Owned (SREO) can be a valuable tool for real estate investors. This report provides a high-level summary of each rental property and your entire portfolio all in one place.
What is a Schedule of Real Estate Owned?
A Schedule of Real Estate Owned (SREO) is a form that lists all properties that an investor has a full or partial interest in, along with the current market values and corresponding debt obligations or mortgage balances. It's similar to a balance sheet that shows the current real estate equity on both a property and portfolio level. By subtracting current market values from outstanding debt obligations, an investor can easily determine the total net worth of all property owned.
A well-prepared SREO also includes the income, operating expenses, mortgage, insurance, and property tax expenses to track the monthly cash flow for each property and for the entire rental property portfolio.
Image: A Schedule of Real Estate Owned
Items Included on a Schedule of Real Estate Owned
Although there is a lot of information on a schedule of real estate owned, the format doesn't have to be long and complex. There are four main sections to an SREO form:
Property Information
- Percent Owned: Many real estate investors start out by buying property directly and owning 100% of each property purchased. As more homes are added and real estate portfolios grow, some investors choose to purchase shares of a limited liability company (LLC) or purchase property shares with a fractional ownership interest.
- Property Type: Common types of residential property include single-family rental homes, small multifamily buildings, and short-term rentals.
- Number of Units: An SREO shows the number of units in a multifamily building, along with the current occupancy level of the property.
Acquisition
- Acquisition Date: The month and year that each property was purchased. For fractional ownership shares or investment in an LLC, the acquisition date is based on when the investment was made.
- Acquisition Price: Purchase price of each property or the amount of capital invested in a fractional or group investment.
Current Financing
- Lender: Name of the lender, such as a traditional bank or credit union, portfolio lender, private hard money lender, or the name of the seller if the property financing was provided by the seller (as in a seller carryback).
- Rate: Current interest rate on an outstanding real estate loan expressed as a percentage.
- Maturity: Day, month, and year that the mortgage term ends. By looking at the maturity date, an investor can tell at a glance if a loan should be refinanced based on a change in interest rates.
- Market Value: Value of real estate owned is periodically updated on an SREO using current conditions in the marketplace. By marking each property to market and subtracting the current loan balance, an investor can see the accumulated equity in each property and estimate the amount of cash available to pull out of one property to use as a down payment for more real estate.
- Loan Balance: Outstanding balance may be updated monthly each time a mortgage payment is made.
- LTV: Loan-to-value compares the amount of outstanding debt to the property market value. As property prices increase and mortgage balances are paid down, the LTV will decline as well. Real estate investors generally make a down payment of 25% when purchasing rental property, creating a beginning LTV of 75%.
Monthly Pro Forma
- Income: Includes all scheduled rent payments for each property, plus additional income such as pet rent or appliance rent. Income amounts reported on an SREO can be updated by referring to the most recent rent roll for each property.
- Mortgage: Sum of all scheduled mortgage payments for each property, including first and second mortgages (if applicable). If a property is refinanced or a home equity loan is obtained, care should be taken to update the new monthly mortgage payment as well.
- Property Taxes: Some loan payments include a pro rata monthly amount for property taxes, while other investors pay property taxes directly to the county assessor twice a year. The SREO assumes that property taxes are paid monthly to create a more accurate picture of cash flows.
- Insurance: Homeowner and landlord insurance costs are recorded as a monthly expense, even if premiums are paid on an annual basis.
- Other Expenses: Projected expenses other than the mortgage payment, property taxes, and insurance are included here. Because property operating expenses vary from month to month, some investors update this section on a quarterly or semi-annual basis.
- Cash Flow: Calculated by subtracting the mortgage, property tax, insurance, and other expense payments from the income amount. An SREO will automatically calculate cash flow to ensure that income minus expenses equals cash flow.
How to Prepare a Schedule of Real Estate Owned
While some investors may manually create an SREO using a spreadsheet, there's a new and easier way to get this report created. By signing up for a free account with Stessa, you can streamline the process. Simply enter your property address and information, connect bank and lender accounts quickly and securely, and run reports as needed.
The Schedule of Real Estate Owned is available on the Stessa Reports page. It can be viewed on-screen, downloaded as a PDF, or exported as an Excel file for more flexibility.
Image: Stessa SREO Report
The SREO pulls key information from various places across your Stessa account and includes elements such as the percentage of property ownership for each partner, the number of units managed, acquisition date and price, current financing information, income, mortgage payments, property taxes, insurance, other expenses, and cash flow.
Parties Who Use an SREO
An SREO is used by a variety of stakeholders as it provides an easy-to-understand snapshot of an investor's entire real estate holdings on both a property and portfolio level. It is particularly useful when applying for a new loan on an additional property or for refinancing an existing mortgage.
Real estate brokers, investment partners, lenders, and underwriters are just some of the parties who use an SREO. Real estate brokers can assess an investor's qualifications, investment partners can gain confidence in joint ventures, lenders can assess potential risks, and underwriters can calculate a borrower's debt-to-income ratio.
Creating a Schedule of Real Estate Owned can give you an edge in the competitive real estate market and provide valuable insights into your rental property portfolio. With the right tools and information, you can easily track your equity, cash flow, and net worth to make informed investment decisions.
