With a lot of activity at the moment regarding Principal’s expanding, selling or merging, rent rolls and their value is a hot topic for discussion.
Understanding the value of your business provides you the opportunity to take advantage of the current market and expand your Business operations and Property Management Division through the acquisition of other rent rolls. Banks will loan to you on the basis of your rent rolls value, talk to your bank manager regarding conditions which apply.
If you are considering selling your rent roll, understanding the mechanics of its value allows you to ensure a Premium price is achieved. Talk with Kevin Hockey today about how you canmaximise your sale price.
A Quality Rent Roll defined.
A prudent buyer for a Rent Roll will consider the following factors before deciding to purchase. The buyer’s Solicitor, Accountant and Bank Manager are also likely to have input into the “Quality” based on the information you will be required to provide.
Average Property Management fees charged.
Across your Property Management portfolio, on average, what is the fee charged by your office. This is clearly the primary contributor to the income generated from the Property Management department and will therefore be a major influence on the multiplier figure a buyer will pay.
Landlords with multiple properties.
How many landlords own more than one property and most importantly how many own a large quantity of properties managed by the agency? A buyer’s fear will be if a Landlord owns a high proportion of properties, the loss of that owner would have a serious effect on the return and value for the expense they have outlaid.
Another determining factor regarding the value of the rent roll will be based upon where the properties are located and the distance they cover. There is a higher servicing cost and greater likelihood of loss to rental property located outside your core trading territory. Regional areas for instance have a higher cost to maintaining the Property Management division based on the distance usually required to service the properties. The business should have a substantial percentage of the rentals located in your primary trading area.
The demand for rent rolls within your area can clearly determine the value of a rent roll. Whilst the market will have some effect, demand is more likely to be based on whether you are selling a Rent roll only or if the business comes with the sale. The size of the rent roll will also be a determining factor. This is why sometimes sellers choose to break large rental portfolios into smaller groups to sell. Your location, especially in smaller rural areas, can also affect the volume of buyers available. Of course, the Market place will have some bearing and your asking price, like it does in any sale transaction, will attract or deter buyers.
Maintaining good records and files can increase value. A buyer will want to view all Leases and ensure all bonds are lodged, check condition and inspection reports are accurate and complete, files are in order, maintenance has been followed through, keys are available for every property plus signed, valid management agreements are in place and do they have the re-assignment clause completed correctly. Poor record keeping can have a direct influence on the eventual price a buyer will pay.
Average rental price.
Low property management fees charged on properties can make amalgamation with some offices difficult. An office charging a higher commission level may find it difficult to integrate those properties based on a profitability level for their business.
Style of property
Of less influence is the type of property being managed. If the portfolio is primarily of newer brick homes then maintenance levels are lower and are more cost effective to manage. It could be argued a premium can be paid due to lower staffing costs.
Please note – Lett fees and Admin fees are not calculated in the multiplier when valuing a rent roll. This income will be taken into account when determining the viability and nett profit and therefore may reflect your multiplied rate but is not included in the income which is multiplied.
To understand more about the value of your rent roll and how the multiplier is calculated for your business contact Kevin Hockey on 07 3266 4242 or email email@example.com.
Real Estate Agency Sales specialises solely in the sale of Real Estate Agencies and Rent Rolls, that’s all we do.
Article written by Kevin Hockey Dec 2008
Please note – This article is not meant to be considered as advice and all information should be carefully considered before being acted upon. This information should be considered in conjunction with your own specific circumstances.