Why buying a rent roll takes a lot longer than buying a house

When it comes to selling a house, it’s common for sellers to lock in their decision, and put their home on the market shortly afterwards. If they’re lucky, an interested buyer will come along and snap it up. Maybe they’ll have a building and pest inspection. It might be subject to finance. But overall, the process is relatively simple. When it comes to buying a rent roll though, it’s a different story. According to O*NO Legal founder, Kristen Porter, to get the most out of your sale, you should start planning at least two years ahead.

Just as a real estate agent might wander through a prospective seller’s home, offering a few tips ahead of sale – perhaps a fresh coat of paint, some new carpet – as a business owner, you’ll need to go through a similar process when it comes time to sell your rent roll.

It’s a bit like looking under the hood before you sell your car, or getting a building and pest inspection prior to sale – you need to work out what could be tweaked and what can be done to increase its value.

The biggest difference though, when it comes to selling your rent roll, is the time it takes to prepare.  

When you sell your business, you want to put your best foot forward. You want to give the market what it actually wants. And that takes time.

It’s easy to think, ‘oh, I’ve found a buyer’, the minute there’s some interest, but with rent rolls, it’s not that simple. 

Unlike regular conveyancing contracts, which are relatively straightforward aside from the odd variation here or there, contracts for the sale of a rent roll aren’t standard. Each business is unique, and it’s important that both the buyer and the seller are happy with the inclusions.

So while it is a conveyance, it’s a very different asset with a lot of moving parts, therefore the process is much more complex – and longer. 

Before you get to the point of contract, there’s a lot that needs to happen. Your buyer is going to do their due diligence. 

That means they’ll conduct a thorough review to ensure that the rent roll is accurate and complete. 

This process involves reviewing the financial records, leases, and other relevant documents related to the rental properties. 

This can be time-consuming, especially if the rent roll is large or complex.

Negotiating the terms of the sale can also be time-consuming. The negotiation process includes the purchase price, payment structure, and other details. 

This can take additional time if the parties have different expectations or if there are disagreements about certain aspects of the sale.

There are legal and regulatory requirements to think about too. 

The sale of a rent roll may be subject to various legal and regulatory requirements, such as obtaining licences or permits, ensuring the real estate licensing is up to date, that MAA’s and managements are complying with zoning regulations and meeting other requirements imposed by local or state authorities. This can add time and complexity to the transaction.

If the buyer needs to obtain finance, this will also add time to the process.

And that’s just the process itself. There’s plenty to do in the lead up to the sale and if you really want to do things right, you should start the ball rolling at least two years before you plan to make the sale.

Some of the most significant elements in determining the eventual sale price involves the transfer of relationships – are employees staying, are landlords staying and are tenants staying?

Other questions to ask are: Is there a franchise agreement or lease that needs to be assigned? Will the buyer even require them as they may have their own brand and premises? How much could it cost to break the agreements? These are two elements that often get forgotten about and can cost you greatly if you need to strike a commercial deal to exit early (which will reduce the proceeds you get to take home from your sale).

There is always a retention period after settlement, and you want to make sure as many landlords are retained as possible. 

Handing your business over to someone who is like-minded is going to increase the chances of retention – so it’s important to choose your buyer carefully. 

Failing to do so will impact the eventual sale price.

Communication with landlords can take some time. So can conversations with staff. 

There’s a lot of uncertainty and you want to encourage them to stay with the business. 

That continuity of staff is going to further assist your retention levels, leaving you with a higher price in the end.

Just as when you’re selling a home, it’s important to plan around the market. If you’re selling under pressure, your sale price will be dictated purely by market forces. 

If you haven’t had time to properly prepare, you won’t really know whether you are selling at the top or bottom of the market.

The real estate market has highs and lows, and the rent roll market is no different, so you want to be able to effectively plan your timing.

You’ll also want to time it from a tax point of view, so it’s important to talk to your accountant well ahead of sale time.

If you want to sell in two years’ time, start planning now. This is especially important when it comes to tax planning.

If you do want to sell in less time, that’s still possible, but you’ll have to speed up your timeline to get everything in order, to achieve the best possible outcome.

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Kristen Porter

Kristen Porter is a legal practitioner specialising in real estate, property management and privacy laws. She is the founding Director of O*NO Legal The Real Estate Agents' Lawyer.

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