Rent Roll Purchase Tips to Avoid Buying a Lemon

Looking at Buying a Rent Roll?

Rent rolls are hot property in Sydney. The Inner West and North Shore are leading the charge as the state’s hotspots, with agents paying in excess of $4.00.

There are some common questions we field from those in the market for a rent roll, including:

  • What makes one rent roll more enticing than another?
  • How can you avoid purchasing a lemon?

So we have compiled some rent roll purchase tips to help you avoid buying a rent roll lemon.

The Appeal of Rent Rolls

So what is the appeal of a good rent roll?

If managed correctly, rent rolls are a stable source of income. Rent rolls are highly sought after by agents who are looking to expand their Property Management department. They are also attractive options for silent partners looking for a good investment.

Despite the recent tightening of lending criteria from the big banks making the overall lending process more difficult, we are seeing a lot of small rent rolls come onto the market. As a result, they are being snapped up by agents with their available cash flow.

They may be on the market due to an agent selling a portion of their portfolio, or where they have ‘out of area’ properties. Others may be looking to simply offload that part of their business in an effort to focus on other aspects of the business. Whatever the reason, they are hitting the market and being snapped up.

Rent Roll Purchase Tips – Questions to Ask

  • What is the number of properties in the portfolio? Is the agency selling a portion or the whole rent roll?
  • How many properties are currently vacant? (Should drop to other agents).
  • What is the state of the arrears? Are there many 14 days and over? (You want to minimise time spent at tribunal).
  • How many properties are in fixed-term leases? (To get an idea of future vacancies).
  • Do they have any leases expiring in December? (You want to avoid leasing property at this time of year).
  • Are the inspections up-to-date?
  • Are there any Landlords selling their property in the next 3 months? (Weed out any issues before they happen).
  • How many of the portfolio owners own multiple properties? (This can be a bad thing because you don’t want to find out there’s a single owner that owns the entire portfolio).
  • Where are the properties located geographically? (You don’t want to drive miles to do inspections).
  • What is the condition of the properties? A, B, C or D grade. (You don’t want to purchase a portfolio of all D grade properties which usually means Z grade tenants and owners).

How to make your seamless rent roll transaction

It is a nice bonus if the selling agent uses the same software as the buying agent. This will make the process easier and will save a lot of hassle for you as the buyer down the track.

What is the rent roll worth?

The multiplier will vary depending on the location and ‘health’ of the portfolio. It generally floats between $3.00 – $3.50 per $1 of management fee income.

Our sources report that the multiplier for rent rolls in Western Sydney fluctuate between $2.80 – $3.30. Several agents report that there are many rent rolls to choose from due to the declining sales market in certain locations. A lot of ‘sales only’ agencies are looking to cash in. They are seeking to take a break from the market which in turn is pushing prices down. Look out for ‘bargain buys’ in these areas.

So if you are looking to purchase a rent roll…

If you are in the market to purchase a rent roll but don’t want to buy a lemon, then contact the team at Rent Roll Angels. We offer a unique business broking consultation service for rent roll buyers and sellers.

– Jane Morgan is the Director of End of Month Angels, a consultancy firm specialising in Trust Accounting and Rent Roll Angels, a business broking agency specialising in rent roll sales. Contact Jane today to discuss your rent roll requirements. 

2020-02-12T01:06:42+00:00