How Are Rent Rolls Valued?

Rent Rolls are typically valued on a 12-month forecast of management fee commission income (excluding G.S.T.) on a fully let basis. Then the multiplier is applied to that amount. E.g. 3.5 X Annualised Rent Roll Management Fee Commission Income = Price.

It's not standard industry practice to apply the multiplier to the extra fees and charges. (E.g. Admin Fees, letting fees, recovered advertising cost etc.). However, higher than average extra fees, and recovered cost can positively affect the multiplier a purchaser may be willing to pay on the management fee commission income.

Other key performance indicators that come into consideration are,

• The Average Annual Management Income (AAMI) per property under management for your region. For example, if your AAMI is below the area average, the multiplier you may get may be less than average. Conversely, if your AAMI is higher than average for your area you may get a higher than average multiplier.

  Q. Do you know where your AAMI sits based on your area of operation?

• The average management commission fee percentage (%) excluding G.S.T. for example, is your average management fee commission percentage 4%, 5%, 6%, 7% (plus GST) or more?

  Q. What's the average buyers in your area are seeking and/or expecting?

  Q. How can you quickly improve your average management fee commission percentage without loosing managements?

• Complete and accurate key documentation on file, 

  Q. Do you know what those Key Documents are?

  Q. Do you know if you have them on file for every management and what may be impact of this?

• The number and ratio of owners with multiple properties/tenancies. E.g. Do the vast majority of owners only have 1 or 2 properties or are there owners with 5,10, 20 or more properties/tenancies, and what ratio do they represent of the rent roll overall?

Q. What impact does this have on the rent roll value?

Q. What's common?

Q. What ratio do lenders like to see?

• The geographic spread of the rent roll. The more geographically concentrated, the more attractive the rent roll will be.

Q. What are typical industry expectations in relation to the geographic spread?

Q. How may this affect the overall value of the rent roll?

Q. What's the best way to maximise the value if the rent roll has a broad geographic spread?

• Types properties. Residential, Commercial, Rural properties, Storage facilities.

They all valued differently. And the number and ratio of different types of properties within each of these categories can also have an impact the overall value.

• Quality of the properties.

• Arrears

• Vacancy rates

• Directors, staff, and family owned properties

• What the sellers intend to do post completion

• Non-compete Agreements

• Deeds of Restraint offered

• Retention amount and periods (post completion/settlement).

And, the list goes on...

It gets even more complex and detailed when the business is being sold as a going concern.

It is not uncommon for real estate agents choosing to go it alone when selling a real estate business and/or rent roll. So, off they go working through the process, only to find that the transaction takes longer and is more distracting, time consuming, frustrating, stressful, and complex than first thought. Or, items importance get missed early on, then come to light weeks down the track, causing key elements of the deal such as price or terms to be renegotiated. Or even worse, cause the transaction to fall over all together. Or, the transition process was not carried out as well as could be either the Vendor or the purchaser, dramatically affecting the end net result.

I have also heard the horror stories where rent rolls have sold for significantly less than they should have simply because the Vendors used incorrect methodologies to arrive at the price from the onset.

So, Just like you as an agent encourage your clients to engage your services as a professional marketer, adviser, intermediary, and negotiator... Shouldn't you consider doing the same when it comes to selling your valued business asset?

Call or email us today to find out more about the customized service, advice, and resources we can provide to ensure you achieve the absolute best outcome.