Buying a rent roll: what to consider

We’ve already looked at the things you can do before selling your rent roll to make sure you’re ducks are in a row, and now it’s time to talk about buying a rent roll. Buying a rent roll is a big decision, no question. Whether you’re currently running an agency and want to expand or grow your business, or you’re just starting out. Many Principals don’t know where to start.

We’ve partnered with Rent Roll specialists Real Estate Dynamics, to help put together the top considerations for Principals when buying a rent roll. There’s lots to consider, so read carefully!

1. STATISTICS OVERVIEW

A statistics overview runs through: the total number of properties on the rent roll for sale; the average management fee; the average weekly rent; and the average annual management income. Once you have these numbers worked out, add them to produce your total Property Management income. This number is multiplied by a multiplier to show you the total purchase price. To understand the right multiplier for your business, speak to the experts in rent roll valuation, Real Estate Dynamics, who can help you finish off your valuation.

This process is also required when you’re considering selling your rent roll. Regardless of your intentions, the above four figures are important for any agency to understand so you can keep track of your business position.

Don’t forget to consider additional Income Fees and Charges, which is the additional income above the annual management fee for the rent collected income.

2. FEES & WEEKLY RENT COMPARISON

Conducting a comparison will help you as a Buyer understand important figures, such as the rent per week and the location of properties. It helps to present this in a visual graph format with percentage comparisons, to see the spread of the properties over the entire Rent Roll. For Principals already in the business, you can use this visual asset and compare it to your current rent roll to make sure the two will work together.

3. PROPERTIES PER OWNER

As a Buyer, you need to consider how many Property Owners on the rent roll have multiple properties. This establishes the risk factors related to owners who have more than one property, and the impact this could have on the rent roll.

You should also look at the current position of the rent roll, not just financially but structurally too. This could include looking at;

  • Vacancy rates
  • Routine inspections
  • Periodic tenancy numbers
  • Administration data and account Information
  • Rent Roll staff structure
  • Trust accounts
  • Leases
  • Intended payments methods
  • Current rent arrears

Employee Information should also be provided by the seller to give the buyer a snapshot of who’s running the business right now, and their availability to transfer with the Rent Roll

4. PROPERTY TYPE

Houses or units? RED’s Rent Roll Evaluation Schedule gives buyers a detailed breakdown in the numbers of both houses and units. This allows Buyers to drill down into more detail with the data provided.

5. EXPRESSION OF INTEREST

If you’ve looked at the variables and know and understand what you’re about to embark upon, you should show an Expression of Interest. This allows Buyers to actually make an offer, and the Seller to agree to it. Once the Expression of Interest has been agreed upon, you can go straight to contract knowing that both parties have agreed in principle to the major terms and conditions. This often includes factors such as due diligence, retention, finance, settlement, deposit, and restraints.

INFORMATION OVERLOAD?

Were you considering buying and now just feel a little overwhelmed with where you start? Real Estate Dynamics produce a very comprehensive Business Sales Information Memorandum to help guide you along the way. It has been developed over the past 10 years to take Buyers through the business in a step by step process to answer their questions in detail. This way, you can make an informed decision to purchase.

This process is so important, so having a guide ensure both the Buyer and Seller are informed, answering all their questions, in what is a very complex transaction is a big asset.

If you want to learn about how Console can help Principals grow their business – head over here.