The Personal Financial Statement in Real Estate
Real estate investing is a team sport. Success often depends on leveraging the collective financial strength of a deal team. If you are getting a loan for a multifamily investment, then a personal financial statement (PFS) can help. It is also useful for building trust with brokers and sellers because it gives a clear view of your personal finances.
A personal financial statement for individuals is a valuable tool that provides a clear snapshot of an investor’s financial health. Keeping your financial statement up to date is not only beneficial, but essential. It increase your chances of securing loans, but also plays a key role in financial planning. By regularly reviewing your personal finances, you can make informed decisions, track progress toward your financial goals, and ensure long-term financial stability.
In this article we’re going to go through what is a personal financial statement, how to create a personal financial statement, and how to fill out a personal financial statement for individuals.
What Is a Personal Financial Statement?
A personal financial statement is a document that outlines an individual’s financial condition. It details their assets, liabilities, and income sources. It serves two primary purposes in multifamily real estate investing:
1. Demonstrating Financial Strength for Lenders Using Personal Financial Statement
When getting a loan, lenders usually ask for a personal financial statement. This helps them see if the investor can afford the loan. In multifamily lending, loans fall into two categories:
- Recourse loans: These loans need a personal guarantee. This means the lender can go after the borrower’s personal assets if the loan is not paid back.
- Non-recourse loans: Do not require a personal guarantee, limiting the lender’s ability to claim personal assets in case of default.
To qualify for multifamily lending, lenders typically require:
- Post-transaction liquidity of at least 10% of the loan amount.
- Post-transaction net worth equal to 100% of the loan amount.
If multiple investors are involved, these requirements apply collectively.
2. Building Credibility with Brokers and Sellers
A personal financial statement reassures brokers and sellers that an investor has the financial capacity to close a deal. This credibility is essential in competitive markets where multiple buyers may be vying for the same property.
Maintaining an updated financial statement can give investors a competitive edge, showcasing their financial preparedness.
How to Make a Personal Financial Statement
Creating a personal financial statement (PFS) is simpler than you think. You don’t need fancy software. Just grab a free template online or use a basic spreadsheet. Start by listing everything you own (assets), like cash, real estate, stocks, and cars. Then, write down everything you owe (liabilities), such as mortgages, credit card balances, and loans. Subtract your liabilities from your assets, and boom! That’s your net worth. Finally, jot down your monthly income (salary, rental income, dividends) and expenses (mortgage, bills, debt payments) to see how much cash flow you have. Keep it updated, and you’ll have a clear snapshot of your financial health whenever you need it.
Key Components of a Personal Financial Statement
A personal financial statement consists of several sections, each providing a detailed breakdown of an individual’s financial health.
1. Sponsor / Guarantor Information
This section includes:
- Name, address, and contact information.
- Employment details and income sources.
- A summary of financial responsibilities related to real estate transactions.
If multiple sponsors are involved in a deal, each should complete their own personal financial statement.
2. Assets
Assets represent everything of value that an individual owns. The personal balance sheet within the individuals financial statement divides assets into two categories:
A. Liquidity
Liquidity is critical because it represents readily available cash. Lenders often prioritize cash flow over long-term assets when assessing financial strength. Key liquidity categories include:
- Cash in Banks: Checking, savings, and money market accounts.
- Securities Owned: Stocks, bonds, and other publicly traded assets.
- Cash Value of Life Insurance: Policies with a cash surrender value.
💡 Liquidity Requirement: A combined post-transaction liquidity of at least 10% of the loan amount is preferred.
B. Long-Term Assets
Long-term assets are investments that take longer to convert into cash. So, while not as critical as liquidity, they still play an essential role in a personal financial statement.
- Retirement Accounts (401k, IRA, etc.)
- Notes and Receivables (Money owed to the investor)
- Real Estate Holdings:
- Primary Residence
- Secondary Residences / Vacation Homes
- Other Real Estate Owned
- Real Estate Investments and Partnerships (LLC shares, syndications, etc.)
- Businesses Owned
- Personal Property (High value assets like art, automobiles, or collectibles)
Pro Tip: Real estate investors should document asset valuations using third party estimates to ensure credibility.
3. Liabilities
An individual’s financial statement must also include all financial obligations, categorized into:
- Loans Against Securities: This is a loan where a person borrows money. They use their investment portfolio, like stocks, bonds, mutual funds, or ETFs, as collateral. If the borrower fails to repay, the lender can liquidate the securities to recover the debt.
- Loans Against Insurance Policies: A loan taken against the cash value of a life insurance policy. The policyholder can borrow funds while keeping the policy active, but failure to repay can reduce the death benefit or cause policy cancellation.
- Loans Against Retirement Accounts:This is a loan. A person borrows money from their 401(k), IRA, or other retirement accounts. These loans usually have repayment terms. If not repaid on time, there may be tax penalties.
- Mortgages on Primary and Secondary Homes: A secured loan used to buy a main home or a vacation home. The property acts as collateral for the loan. If payments are not made, the lender can foreclose on the property.
- Loans on Other Real Estate: A loan taken out on rental properties, commercial properties, land, or other real estate. In this case, the property serves as collateral. These loans can include investment property mortgages, commercial loans, and construction loans.
- Credit Card Debt: Unsecured revolving debt owed to credit card companies. Borrowers must make minimum monthly payments, and interest accrues on unpaid balances, potentially leading to financial strain if not managed properly.
- Other Loans Payable (Auto Loans, Business Loans, etc.): Debt obligations that do not fall under mortgages or credit cards, including auto loans, business loans, student loans, or personal loans. These loans may be secured (backed by collateral) or unsecured (not backed by collateral).
Net Worth Calculation:
Net worth is determined using the formula:
Total Assets – Total Liabilities = Net Worth
Lender Requirement:
In multifamily lending, the total net worth of the loan guarantors should match or exceed the loan amount.
4. Contingent Liabilities: The Hidden Risk
Contingent liabilities are indirect financial obligations, such as personal guarantees on loans for other properties. They add financial risk and are categorized into:
- Unrealizable: Strong-performing properties with minimal risk.
- Potentially Unrealizable: Properties showing minor weaknesses.
- Potentially Realizable: Properties at risk of sustained underperformance.
- Realizable: Failing properties that may require loan repayment.
Lenders carefully evaluate contingent liabilities because they want to ensure that an investor is not over leveraged.
5. Personal Income Statement: Tracking Cash Flow
A personal income statement is a critical part of a personal financial statement, detailing an individual’s income and expenses.
Income Sources:
- Salary, bonuses, commissions
- Rental income
- Dividends and capital gains
- Partnership distributions
Expense Categories:
- Taxes
- Mortgage payments
- Insurance
- Alimony, tuition, and other recurring expenses
Net Cash Flow Formula:
Total Income – Total Expenses = Net Annual Cash Flow
A negative cash flow may require an explanation, such as an expected property sale or refinance.
6. Additional Financial Information on a Personal Financial Statement
Lenders, brokers, and sellers may also request:
- Outstanding Tax Obligations
- Bankruptcy History
- Letters of Credit
- Pending Legal Matters
Providing full transparency ensures trust and credibility in financial transactions.
Need a blank financial statement? CLICK HERE for a sample personal financial statement template.
Why You Need a Personal Financial Statement
A personal financial statement is not just for lenders, its also a financial planning tool that helps individuals:
- Track net worth over time
- Identify strengths and weaknesses in personal finances
- Make smart investment decisions
- Stay financially prepared for real estate opportunities
Pro Tip: Update your personal financial statement annually to reflect current cash flow, assets, and liabilities.
Last Thoughts from Rod Khleif About the Personal Financial Statement
A personal financial statement isn’t just a document, it’s a powerful tool that separates successful investors from those who struggle to scale. If you’re serious about building wealth through real estate, this isn’t something you fill out once and forget. It’s a roadmap that helps you track your net worth, understand your financial position, and present yourself as a credible and bankable investor.
I’ve seen firsthand how having a well organized PFS opens doors to deals, secures financing, and builds trust with brokers, lenders, and partners. When you understand your financial standing inside and out, you make smarter investment decisions and position yourself to capitalize on opportunities before others even see them coming.
The real takeaway: your personal financial statement is a reflection of your financial discipline. If you’re not actively updating and reviewing it, you’re flying blind. Know your numbers, take control, and use this tool to fuel your real estate empire.
If you’re ready to level up your investment strategy, join me at my next Multifamily Bootcamp, where I’ll show you exactly how to structure your investments, finance deals, and scale with confidence. Let’s build something great together!
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