Investors are often out of their depth producing the required documents for lenders and investors. They feel inadequate or ill-prepared to achieve this end. However, document preparation is really primarily a function of knowing what documents are and how they interrelate.

The key documents for a rental investment, whether it is a single-family home, a duplex, a quad, or an apartment complex of several hundred are:

1. Residential rental property information, including age of construction, number and type of units, amenities, acreage, number of buildings, features per unit (appliances, flooring, carpet, heating, air conditioning, conditioning, bathrooms, bedrooms, etc.) and the address;
2. Debt information, including term, amortization, rate, interest only or not, and amount plus broker and lender information fees and origination costs;
3. Capitalization table with investor information including name, address, email, telephone, fax number, amount invested, price per unit, number of units purchased, total capital invested, and management interest;
4. Sources and uses showing debt (from debt information), equity (from capitalization table), fees, improvement reserve, operating reserve, purchase price with sources equal to uses;
5. Balance sheet showing assets consisting of operating reserve, reserve for improvements, buildings, land and others, liabilities showing all debts and owner’s equity. Assets will be equal to liabilities plus owners’ equity. Buildings and land will include the capitalized costs of the purchase price and fees;
6. Pro forma financial statements showing revenues, expenses, debt service, improvement costs, net cash flow and operating reserve;
7. Occupancy assumptions per month during the life of the project. Most banks will want to see a minimum of three years and up to seven years. Normally five is a number of years that works for everyone;
8. Calculation of key metrics for net operating income, assessed value based on assumed capitalization rates, loan-to-value ratios, and debt service coverage ratios; Y
9. Return calculations including internal rate of return (IRR), cash-on-cash return, and return on investment as a ratio of annual cash flow to cash invested.

With these defined, investors can easily gather the information, ask the accountant to assemble the tables, or use a service or tools to complete these documents. In fact, we have prepared a package of tables that allow you to simply fill in the blank to produce all the tables automatically. As an investor, responsibility is limited to knowing the expected terms of debt, investments by investor, property information, planned improvement costs, and expected income and expenses. The worksheet automatically produces the complete set for you.

As you consider this information, keep in mind that no matter how you produce these statements, you should review the documents to ensure they make sense at each level. Completing this, you need to check balance amounts on balance sheets, check expense totals, check income totals, check income, check cash flow, etc.