The rent roll value is a number many Principals don’t know, and a task that is often hard to tackle if you don’t know where to start. We recently spoke on our blog (here) about some of the top considerations that Principals should look at if they’re thinking about selling their rent roll. Setting a date, getting your finances in order, and working out your T-A-M-I are all things that are important to cover before thinking about selling. However, calculating the rent roll value is arguably the most important metric.
You’ll more than likely need some help from the experts in rent roll valuation (such as Real Estate Dynamics) after you determine your four critical numbers. However, if you can determine the below four numbers for your business, you’re over halfway there! Be prepared, you’re going to need to wake up the left side of your brain to help you deal with the numbers.
We’ve partnered with RED to give us some top tips on how you can get the ball rolling.
How do I get started with rent roll valuation?
There are four critical numbers that you NEED to know in order to properly and accurately calculate the value of your rent roll, and here they are:
1. Number of PUM.
The first question for business owners is whether they know how many properties are under management. For smaller businesses, this might be easier and monitored more regularly, but for larger agencies, this can often be an arduous task to undertake. This is the first step and is an imperative number to know – so get counting!
2. Average weekly rent.
Once the number of PUM is confirmed, find out the average weekly rent across the rent roll. Ensure you’re using the most up-to-date data in your system to produce the numbers. This will make sure you’re getting the most accurate results.
3. Average management fee.
This one can certainly be a little more time consuming based on whether you have a set management fee, or vary the fee depending on various factors. You might give discounts to landlords if there’s more than one property per landlord, or you might sometimes do a special offer to retain a landlord. Either way, this number is imperative to know, so be as thorough as possible.
4. Additional income.
Do you know how much extra income you’re making now through extra fees and charges on your Rent Roll? If you don’t, it’s time to work it out!
Once you get your head around those critical numbers and have them sitting in front of you, you can then determine what your Average Annual Management Income (AAMI) is. Multiply that AAMI by the number of properties under management; this gives you the total income for that business.
The total management income is then multiplied by a multiplier based on the assessed Rent Roll. This gives you the overall value of the business. 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.
Remember though, always keep track of the above four numbers, as these variables have a direct effect on your business on a daily basis, and will aid you in having a clear understanding of your business position into the future.
For help about how you can best prepare your rent roll for sale, including running the most important reports from Console Software – contact us now.