Sold Magazine talks to experienced Rent Roll Broker Matt Ciallella about how to ensure a smooth transition period when buying or selling a rent roll.
When purchasing a rent roll or real estate business, a smooth transition is critical to ensuring vendors maximise their sale price, while buyers protect their future income and reputation. Buying or selling a rent roll or real estate business is a big step for both vendors and buyers. There are many steps during the process – from planning the sale/purchase, marketing the business, negotiating a sale, exchanging contracts, pre-settlement, settlement and then transition.
“One of the biggest mistakes vendors make is delaying the transfer of the new management agreements to the buyer before settlement,” says Matt Ciallella, Director, mc rent roll broking. “For a vendor, it may seem that all the hard work has been done prior to exchange, in preparing the rent roll or business for sale and marketing the business to attract the right buyer. Just as important is the transition of the management contracts to maximise the purchase price and protect the rent roll income,” adds Matt.
“Planning the transition of management contracts needs to happen well before settlement – in fact, it is something vendors should start organising when they plan the sale of the rent roll or business. Vendors and buyers should jointly plan transition once a buyer has been identified, and then start implementing as soon as contracts are exchanged,” says Matt. “It’s ideal to have at least 50 per cent of new management contracts signed prior to settlement, so there is something to settle on.”
For buyers, it’s also important to have a smooth transition of management contracts to protect their future income and build a relationship with new landlords and clients. “It’s important for landlords and clients to have a positive experience during the transition period,” says Matt. “It’s a good idea for vendors and buyers to develop a joint communication plan, to ensure landlords and clients are aware of the changes to the business managing their property. The communication plan needs to ensure the buyer informs the landlords and clients about future changes, including timing and clear instructions on what they need to do in order to return new management agreements before settlement. If appropriate, vendors should even consider meeting landlords to ensure the new management agreement is signed promptly,” Matt adds. “Post-settlement, buyers should also look at ensuring they start relationship-building activities with landlords and clients.”
Many real estate agencies use different software to manage their rent roll. When transitioning a rent roll or real estate agency, software compatibility needs to be taken into consideration to ensure all data is transferred to the new buyer.
“Where possible, both vendor and buyer need to ensure they are on the latest version of their respective software,” says Matt. “Also, book in the data merge as soon as practical with the buyer’s software provider as this could hold up settlement. This will ensure a smooth transition of all vital client data and reporting to the buyer. It’s also important to keep historical information such as tenant agreements, property photos and inspection reports. This may take time, so allocate time well before settlement to complete this.”
When planning the transition strategy, staffing is an important consideration. “Up until exchange, the sale is confidential,” says Matt. “When it comes to staff, it’s an emotional decision. Engaging staff (for both vendor and buyer) is important after exchange to brief them about the changes to the business – and their personal circumstances.” Relationships with landlords are often entrenched with property management staff. It’s important to review this and for vendors and buyers to jointly make a decision about staff. “To ensure management agreements stick with the new buyer, it’s wise to bring property staff over to the new business to maximise retention of these agreements,” adds Matt.
When purchasing a rent roll or business, buyers should do thorough due diligence on the business to ensure there are no surprises during the transition period or even post-retention period. This includes ensuring there are no outstanding creditors or ATO debts that will financially burden the business, especially when purchasing shares in a company. Matt recommends speaking to a solicitor who has experience in dealing with real estate agency and rent roll sales to ensure buyers understand what due diligence needs to happen.
Communication during the sale process is key. If vendors or buyers don’t have the expertise in their office regarding the process, they should consider talking to the vendor/buyer for advice, if appropriate. Collaboratively working together could mean the right result for both parties, including a quick result. “For many real estate agents their expertise is sales and managing a team – not managing a rent roll or business sale,” says Matt. “There are many real estate agents out there who have had experience in purchasing or selling rent rolls or businesses, so support may be available from the vendor or buyer.”
mc rent roll broking is a specialised rent roll and business broking service for real estate agents, founded by Matt Ciallella. For more information, visit www.mcrentrollbroking.com.au.