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What will banks lend on a rent roll purchase?

A real estate business can be quickly taken to the next level with the acquisition of a rent roll. This gives you instant access to ongoing management fees and allows you to build relationships with potential future buyers and investors.     Borrowing to buy a rent roll is similar to buying a house - there are caveats, policies and guidelines which must be adhered to. The bank will do just as thorough a check on your business as they would with anyone applying for a loan, so it is important to have financial records and details available for inspection.  

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What is the roll of a rent roll broker?

Rent-roll sales are much more complex than they appear and the role of the rent-role broker is far more involved than a real estate agent. On the surface a rent-roll sale is simply a case of establishing the value of the rent-roll and then finding an agency willing and ready to purchase. In reality, the steps and nuances of such a transaction require a specialist rent-roll broker. An experienced and successful rent roll broker will cover all the following steps: Vendor motivation Understand why the vendor is selling in the first place. 

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How do you value a rent roll?

You’ve nurtured your rent roll and business for years but what is it really worth? The value of your rent roll is established at the time of settlement. The price is reached by assessing a multiplier of the annual management fees for the rent roll as at settlement. The value of your rent roll can be influenced by variables such as:   Exactly what you are selling If you are only selling the rent roll it is deemed an asset sale. If the rent roll is part of the the sale of shares in a business, it will have different elements affecting the value.

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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.

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Five tips on pricing your rent roll accurately

When you are pricing your rent roll or agency there are a number of tips you should consider when you are selling. The speed of the transaction and the ease in which a sale is concluded depends on the transparency and accuracy of the information made available. This is pertinent particularly when the buyer is obtaining finance from the bank or lender. 

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Due Diligence

Buyers of businesses are naturally concerned that they have made a “good” buy and that any representations made to them have been true and correct. To provide this assurance there will often be a condition in the agreement for sale and purchase for the buyers (or their professional advisors) to check the business further. For the smaller business this may be as basic as approving the lease and the financial statements. For the larger business the process may be far more complex and take longer to complete. 

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Preparing your rent roll for sale

Make sure that you know your business- what are the state of the rent roll files? If you are selling a rent roll then you need to more than making sure that what’s in the file matches the computer records.

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