How to buy a rent roll
To buy a rent roll you need to be a licensed Estate Agent. When you buy a rent roll the price you pay is a multiplier of the management fees. Items that effect values have described in other articles on the blog, however these are some factors that influence value;
1. The number of properties under management- if the rent roll being sold is too small then buyers will find it hard to secure finance from a Bank. If the rent roll is small then due to finance restraints the price will be affected negatively.
2. Banks generally like to lend on a rent roll of 150 or more properties.
3. The ratio of landlords to properties will influence value. Ideally a 1:1 ratio is perfect.
4. The geographic spread of properties.
5. The mix of properties under management.
Any offer to purchase a rent roll will encompass the price offered, settlement terms, is it subject to finance or not, the restrictive covenant offered by the vendor and the retention period and amount.
The broker will draft up the heads of agreement and then once all parties agree on the sale price then the vendor will instruct its solicitor to prepare contract of sale. The contracts are exchanged, a deposit paid and then the buyer has the right to conduct due diligence investigations. No due diligence occurs prior to any agreement reached between parties.
At the conclusion of DD, the parties agree on the wording for the assignment letters to be sent to the landlords (VIC ) or new authorities will be sent to all landlords in the name of the new agent.
The final settlement price is determined once all authorities have been returned or notification of assignments has occurred. Generally the settlement of a rent roll occurs at the end of the month thus allowing the vendor to account to all stakeholders. All tenant and landlord information is required to be transferred onto the purchasers trust system at settlement allowing for an easier transfer. Naturally there will be a period of involvement from all the parties to ensure that the transfer occurs as smoothly as possible.
The retention sum and period operates for the purpose that if any property drops off for no apparent reason post settlement then a financial adjustment can be made on those properties that drop off at the conclusion of the retention period. An amount of money from the settlement sum is held in Trust to satisfy this clause.