Rent Rolls- Build or Buy?

If you are serious about building long term wealth in a real estate business that will become an asset you can sell in the future then the decision is not whether you need a rent roll but which is the most effective way to increase your properties under management.

Acquiring a rent roll in geographic area may not be a simple option, the choice may be made for you, but if it is possible, buying an existing rent roll could fast track your property management success. Although it is normal to borrow the money to fund the acquisition of a rent roll you get the benefit of immediate cash flow from rental commissions and letting fees. You are also buying the relationship or goodwill that exists with the property owners and this is a great platform to leverage your services to build upon the solid base you have purchased.

When you start a rent roll from scratch it is difficult because of the initial and ongoing expenses, such as employment, marketing and administration costs paid whilst growing the rent roll. It is not uncommon for the Principal to initially grow and manage the rent roll however this does take your focus away from more productive areas of the business. Building a profile and reputation in property management will take time- initially you will have a negative cash flow and the growth in income will be inconsistent.

When buying a rent roll the main concerns purchasers have relates to the retention of owners and properties. You need to make sure that the retention clause in the contract of sale is fair to both parties and if a property drops off during the retention period then you don’t pay for it at the completion date. A retention clause will ensure that the vendor participates in the hand over process and do anything possible to see the smooth transition of the change of business owners. After all it is their financial interest to do so.

Generally speaking a well run property management business has identifiable systems and procedures in place. As part of your due diligence take a close look at the quality of properties under management- take particular note of the amount of arrears, pending tribunal hearings, the number of multiple owners, and owners that may have a close relationship to the principal, the outstanding or upcoming maintenance, are the routine inspections, rent reviews and lease renewals up to date and the paper work in place.

A quality rent roll remains a fantastic asset and investment. It will pay for itself in a few years and provides instant cash flow to the business as well as a source of sales and investors looking to purchase another investment property. Ross Hedditch can be contact at bdhsolutions.com.au