How should I treat the income/debt payments for a rental property or business?

Abby Morton
Abby Morton
  1. Keep the asset and debts included in net worth, but don't include the amount of debt payments in those balance sheet items. Doing this would keep the real estate in the clients net worth without affecting the cash flow.

    1. This use case is most common with business owners or people that view these rental properties as a business. Essentially they see these as items that operates completely separate from their personal life.

  2. Add the debt payments and include any income from the property that would be used to pay down that debt. This will be a common approach for folks that have maybe one or two properties as a personal investment. You're correct in your assessment - if you choose to include the debt payments in the Debt Rate element, you'll also want to add an equal amount to their income as well.

 
 

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