A rent roll purchase can be a good way to significantly expand your property management footprint in one go. Find out what to look for.
In 2024, many real estate agencies are taking advantage of Australia’s competitive rental market and expanding their business with the purchase of a rent roll.
When new rental properties are few and far between, making a purchase instead of attempting to grow organically can make good business sense. However, you need to take steps to ensure you make a savvy acquisition which will pay off for your agency in the long term.
Here are five things to keep in mind when purchasing a rent roll.
1. Quality vs quantity
While it's possible to build a team of smart property managers and offshore staff who can streamline operations, the more properties you have on your books, the more time and people power is required to manage them.
When you buy a rent roll, if it is significant in terms of the number of lots, make sure your team will be able to manage the workload while still being profitable. The properties should be relatively close together or even in the same apartment/unit block if possible.
It comes down to numbers as well, because profit margins must be significant enough to deliver return on investment. A smaller rent roll purchase with larger, luxury homes could end up being more profitable, or you may find you need to ‘go large’ with a higher number of units and apartments in order to create the returns you want.
2. Check compliance
Victorian rental property owners have been under a lot of pressure to ensure their homes meet the latest regulations. There are 14 categories of rental property minimum standards which cover everything from toilets and bathrooms to window coverings and ventilation.
As recently reported by Tenants Victoria, 15 per cent of rentals are in breach of the latest update to the rental tenancies act. Before you buy a rent roll, check every home on the list meets the required standards or you and the owners could find yourself facing unexpected expenses.
3. Review contracts and authorities
Some property management agencies allow contracts to expire, often without realising it has happened. This should come under the due diligence phase of your purchase; make sure you’re not acquiring properties with no agreement in place.
In addition to this, make sure you don’t buy a rent roll with dozens of contracts set to expire in the near future. You may find you lose a lot of clients quickly and in one hit, which will devalue your purchase.
4. Administration and documentation
Is the rent roll you are set to purchase well organised and thriving?
If you want to hit the ground running, you need access to the relevant information, contracts and administrative systems. Ask about how day-to-day administration is performed and how the transfer of IP will be managed.
5. Past performance
Strong indicators of ‘churn’ will tell you a rent roll may have been badly managed and landlords don’t tend to stay around for too long. Look at figures to make sure you’re not purchasing a sinking ship which can’t be rapidly repaired.
Reputation is important so ask the seller if they have any way of proving goodwill. Looking at online feedback yourself can be a good place to start.
There are other factors to keep in mind as well:
Staff: How long they have been with the business, how likely they are to transition and stay with you, and will they be an asset to your agency?
Performance forecast: How is the area you plan to purchase the rent roll in expected to perform over the coming years? For example, will a new development help you add to your rent roll?
Cash flow: How long will it take you to be cash flow positive and are you able to handle cash flow pressures until that time?
Finally, make sure you work with an expert who is clear on how the rent roll you plan to purchase is valued and understands the inner workings of the required contract. Due diligence and negotiation will be required to ensure the outcome makes sense for your agency as well as the vendor.