Ten questions you must ask when you do a rent roll valuation

1)    What are you valuing?
Is it the shares in a company, the assets of the business (rent roll, plant & equipment) or is it a part interest?

2)    Why?

What is the purpose of the valuation? Buy/sell decisions, merger, tax/estate planning, partnership or marital splits, litigation support etc.

3)    Which standard of value?

There is an accepted method of valuing rent rolls and sales goodwill.

4)    When?

What is the effective date of valuing the rent roll? Generally speaking rent rolls are sold on a fully leased basis, with the value being determined as at the date of settlement or within 7 days of the settlement date.

5)    What is the key information of the business?

Management agreement signed in the name of the correct entity, current financial information, staff/wage details, suppliers’ contract, systems and procedures, operational leases. Full information will unearth the value modifiers.

6)    What risks does the business face?

Competition, retention of key staff & clients, restrictive covenants, loss of major customers, technological or legislative changes, economic conditions.

7)    What intangibles drive productivity and profitability?

These need to indentified and assessed for transferability. They will range from contracts to relationships, client databases, and personal goodwill.

8)     Audited financial accounts?

For almost all SME the financial accounts will include “one-offs” or discretionary expenses that are not strictly necessary for the production of income, therefore the accounts will need to be adjusted. Also review the trends in the business’s figures? Historic data is a guide but is no guarantee of future performance.

9)    Which are the appropriate valuation methods to use in this case?

When selling a rent roll or business on WIWO basis there are a number of components that make up value; such as the length of time the agency has managed the properties, commission rates and ancillary fees, geographic locations of the properties managed etc.

What does the market say?

All valuations are opinions. The only true test of value is an arms-length sale on the open market. Data from actual sales of similar businesses provides a valuable guide. Is the business saleable?