Buying a rent roll can be risky, but only if you don’t have all the necessary information before making your decision, according to O*NO Legal – The Real Estate Agents’ Lawyer founder Kristen Porter.
Ms Porter said due diligence was a critical step in avoiding any legal, financial and reputational problems, however, knowing what was required for this check could be difficult and confusing.
“Selling a rent roll can be tricky too,” Ms Porter said.
“You will want the process to run smoothly and quickly. Get ahead of the game by ensuring you have all your ducks in a row and have all the information a prospective buyer will want to take a look at and check.”
Due diligence refers to checking whether the vendor’s claims as to the state of their business are true, so you can then determine if the asking price is fair.
“Whilst due diligence is time consuming, it is an absolute must-have in any purchase,” Ms Porter said.
“Just like you wouldn’t buy a second-hand car without having a mechanic look over it first, you should never buy a rent roll without first looking under the hood.
“Sometimes, a rent roll may seem like the perfect way to grow your agency – however, if you’re not careful it can also be the most risky.
“Buying a rent roll, like many other high priced purchases from other people, can be subject to deception and untruths.
When performing a due diligence check, Ms Porter said there were a few factors that must be considered, such as:
- You need to be aware of the total number of properties, and their details, in the rent roll – this is best if it is catalogued for easy access.
- The fees and weekly rent amounts – this is important because it can help you evaluate the rent roll, whether you are buying or selling.
- The business and operational aspects of the rent roll you intend to purchase – eg. what property management software is being used, if you are taking on staff – what are the terms they are employed under and their leave balances etc?
- The outstanding issues any properties may be facing – whether it be maintenance or even legal in nature.
- The ratio of landlords to properties – this could be risky if you have owners with multiple properties on your rent roll, because an issue with them could result in a big hit for your overall rent roll.
“These factors, and many more, are what allow you to determine, if you are the seller, the value of your rent roll, and if you are the buyer, the potential profitability of the rent roll,” Ms Porter said.
To protect yourself and your agency download the Due Diligence Checklist