If you assume the concept of tracking depreciation is only for businesses, then you’d be wrong. I would encourage you to start tracking depreciation for anything valuable in your rental property. It’s a super simple process and a great tool to have in your landlord finance toolbox. In this quick post, I’ll show you how to create a depreciation worksheet for tracking your assets in your rental property.
Benefits of tracking depreciation in your rental property
There are at least 3 big benefits of why you should start tracking depreciation in your rental property:
- Your budgeting will improve. You’ll see a truer picture of your rental income. Maybe you don’t have £1000 left at the end of the month to spend. Once you factor monthly depreciation for your washing machine, boiler, TV, laptop, smartphone, and oven you’re really left with £950.
- You look at ownership differently. Once you start tracking depreciation and see the true cost of ownership, you’ll reconsider whether you need that item with an associated monthly cost.
- You don’t fret when things breakdown. With proper tracking and budgeting in place, you don’t fret when things break as it’s all factored in.
The best part about this is it’s simplicity and only requires a simple spreadsheet that takes a few minutes to set up.
How to track depreciation as a landlord
My spreadsheet below tracks my personal home , my rental property and personal items of value (such as a laptop). Obviously, you can just track your rental property if that’s all that matters. With a few inputs such as purchase date and replacement cost, I can now see how much to save each month and how much I should have saved in my depreciation/replacement fund.
Most of this spreadsheet should be self-explanatory, however, see below a brief explanation of each column:
- Purchase date = when the item was purchased.
- Replacement cost = this can be how much you paid, however, it makes more sense to update this value with current market price (I do this once per year).
- Lifespan = number of years I expect the product to last, this isn’t an exact science (I’m using experience).
- Salvage value = what (if anything) I can sell the item for before replacing.
- Is off the books = whether I’ve saved enough to replace the item (it’s lived its lifespan). This is a boolean value (true/false). When set to 1 (true) then it’s excluded from my monthly depreciation saving total.
- Total depreciation = this is a calculated value and displays how much I should have saved for each item (based on the purchase date and monthly depreciation). I find there’s no harm in having overage (~20%) to cover for items that have shorter than expected lifespan.
- Monthly depreciation = how much I should be saving for each item. When “Is off the books” field is set to 1 (true) then the saving amount is reset to zero.
Excel and Google Sheets make the task of tracking depreciation easier by supporting functions specifically for depreciation. The SLN function used in my spreadsheet is supported by Excel and Google Sheets:
The SLN function calculates the depreciation of an asset for one period using the straight-line method.
Syntax SLN(cost, salvage, life)
– cost: The initial cost of the asset.
– salvage: The value of the asset at the end of depreciation.
– life: The number of periods over which the asset is depreciated.
Now that I track depreciation I can see how much I should be saving each month (£93) and how much I should have saved up (£8,220), it also means I don’t get stressed when something breaks. This is a valuable tool whether you’re a landlord or not that gives better visibility into your personal finances. I hope this was useful and glad to hear any questions or suggestions below.