A rent roll, correctly assembled, is a distinctive document providing you with an array of information. When buying a rental property you are in essence buying the rent roll and the monthly income that comes with it. Why is it important to establish the amount of monthly income from the rent roll? Because this is the contractual re–occurring revenue established from existing, in–force leases. The rent roll is a snapshot of current income as represented by the owner of the asset.
The rent roll is the property owner’s representation of rental income derived from an income–producing real estate asset.
The rent roll is the most critical document in formulating the value of income property. Authenticating numbers on the rent roll leads to creating a high level of comfort in your property buying decision–making process. When considering the acquisition of income property, without discounting the importance of various ancillary income sources, you must devote the most attention to the largest source of revenue, which is the rental income as reflected on the rent roll.
The lease file review is imperative. A review of each lease file is imperative to validating contractual rental income as reflected on the rent roll. Any number represented on the rent roll must tie to a date and amount as denoted on leases; from rent to late fees to lease term.
The rent roll is a snapshot of rents due for the period as reflected in signed and valid leases. The rent roll is utilized by owners, managers, lenders and government agencies as a springboard to understanding the value and stability of a particular real property asset. The rent roll will state the start and end date of the obligation to pay rent, per the terms of the lease.
Is it true that “if” is the biggest word in the English language? In rent roll analysis, “if” rents collected as described by executed leases matched the rent roll, month in and month out, answering the question about collected rental income is answered. Alas, this is seldom the case.
There is no room for the word “if” in due diligence of rental property acquisitions. There is too much money at stake. If (there’s that word again) you are buying rental property, then the money at stake is probably yours. Therefore what you do to acknowledge and address discrepancies between rental income as presented and rental income legally due per the collective leases is vastly important.
How do you use rent roll data beyond basic bookkeeping?
What kind of analytics does your company pull from the rent roll?
How is this applied to running your business?
Mr. Wilhoit is the author of two books: How To Read A Rent Roll: A Guide to Understanding Rental Income and Multifamily Insight Vol 1 – How to Acquire Wealth Through Buying the Right Multifamily Assets in the Right Markets.
For information on two property management audio courses, three books and live weekly leadership academy, visit our PowerHour Books and Courses page at http://powerhour.com/propertymanagement/booksandcourses
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Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. Seek professional counsel. http://www.MultifamilyInsight.com