What to consider before selling a rent roll

ARE YOU THINKING ABOUT SELLING?

More than likely, as a principal there will come a time when you think to yourself “I really don’t want to do this anymore”. The first thought then is usually about selling your rent roll.

It may have come after your senior Property Manager has resigned, or your top salesperson has walked out and opened an Agency in opposition to you (at least you know you taught them well!). Also, you might be thinking about retiring, or moving into another career. Maybe you’ve just had enough of running the business. For some business owners, the market is getting tougher and it is becoming harder to continue to make a profit, or even break even. Disruptors and discounters are entering the market and making the traditional Real Estate Agency compete more than ever.

These are all very good reasons to consider closing the doors and walking away with some cash in the bank, and a new and exciting opportunity ahead – or even just a nice long holiday!

 

BUT, FIRST…

 

Set the date

It is important to set a date ahead when you want to exit the business, but why? Because as we all know, time will just drift by and before you know it, the time when you wanted to be out of the business is long gone.

Could you have missed the good market to sell in? Have you left a bit of blue sky in your business for a buyer to build a better business? Have you set that goal exit date? You need to give yourself a bit of runway time here just in case it takes a lot longer than you think to sell your business.

Selling a business is very different to selling a house. You advertise a property, you put a sign on it, the buyer buys it and 30 days later it settles. Your job is to sell a secret, and confidentiality is paramount. Selling a Real Estate business is a highly complex commercial transaction and success relies on satisfying a number of processes over a period of time which need to be managed in the most professional way.

Get your (financial) ducks in a row

When making a decision to sell your business, it is important to meet with your accountant to discuss any capital gains tax implications. Also, discuss whether you can sell the company or sell the asset in the company. Remember that depending on your age and how long you have owned the company, there may be financial benefits to you. You’ll be better off with a full understanding of your financial position, well before you even think about talking to a broker.

Be you own devil’s advocate

Are you retiring? Retirement means that you will need enough money to fund your lifestyle into the future, so will you have enough? If you are at least five years away from retirement, then you may have enough time to make some changes within your business to improve the value of your business when it comes time to sell.

Not retiring? Will you have enough money to re-invest into another business venture? These changes could amount to thousands (if not millions) of dollars, and will have a dramatic effect on the saleability of your business as well. Do you currently know what your business is worth?  Thinking you know and really knowing may amount to thousands of dollars. If you’re not sure, get in touch with Real Estate Dynamics, they’re experts in this, and can give you a solid understanding about what your business is worth.

What’s your T-A-M-I?

Most Real Estate businesses will have two parts. 1. A sales business and, 2. A property management business. In a sales business, valuators look for a high number of salespeople, high volume of sales turnover and profitability.

In property management, buyers look for a high average annual management income. This is what’s called the AAMI. The higher the AAMI, the higher the multiplier can be typically achieved. High additional income from let fees, administration fees, let management fees and any other additional income is also beneficial. The higher this percentage is against your management fee income, the higher the multiplier can be typically achieved.

Valuators put these two figures together, giving a total average management income or what’s called a TAMI. The higher the TAMI, the higher the multiplier.

Other things to consider:

  • Location: Are your properties close to the current office? If the geographical spread of those properties is too wide, then the cost of managing those properties may be too high.
  • Owners: Consider the makeup of the multiple owners. Is it low or do you have a high owner to property ratio?
  • Management: How is the current Rent Roll run? Is the management authority compliant? Are all bonds held?
  • Reporting: Are all entry condition reports held on file? Are all routine inspections up to date? Do you have all approvals for pets on file? (Console can help with this! )
  • Compliance: Are smoke alarm compliance certificates on file? Are all pool safety certificates on file?
  • Vacancy: How is your vacancy rate? Is this low or is your rent arrears low as well?
  • Access: Do you hold a full set of keys for each property?
  • Insurance: Do you hold a certificate of currency of the Landlord’s insurance or copies of their policies for public and legal liability on file? Do you hold any Landlord insurance details on file?
  • Utilities: Do you hold evidence of water efficiency ratings certificates and if water can be charged?

Ready to take the plunge?

All this will tell a Buyer how you run your business. There is a lot more to think about when selling a business and a lot of information is needed to convince a Buyer to buy your business. The tips above will help you get started, and when you think you’re really ready – reach out to RED and let them help you kick off the selling process!

Good luck!

For help about how your can best prepare your rent roll for sale, including running the most important reports from Console Software – contact us now.