BuxtoniQ is Victoria’s leading rent roll broker and real estate business consultant.
A well-executed agency or rent roll sale is rarely straightforward. That’s why our approach is thoughtful, disciplined and incorporates a 360-degree view of your situation.
We understand the true drivers of real estate business performance and know how to leverage all of our expertise to deliver the right outcome.
For a rent roll broker, it can be quite a process assigning an accurate value to a rent roll for sale.
We place a value on the annual management fee income then assign a rent roll multiplier based on the geographic location and estimate current market supply and demand.
Essentially, a buyer is looking to acquire recurring income which will currently attract a rent roll multiplier of between 2.5 to 4 times, depending on the health of the business and interest from rent roll purchasers.
A highly valuable business needs to demonstrate its ability to improve with rent roll growth strategies so that its income increases over time.
Other factors which improve a rent roll analysis include good cost recovery practices, a proficient property management team and a track record of stable or improving income over at least the last three years.
There are a number of factors which drive a rent roll valuation.
Firstly, there’s the macro factors driving the market for rent rolls and business generally, including how well the overall economy is travelling.
Lower interest rates have a positive impact as it makes the cost of borrowing cheaper, helping people considering a rent roll purchase.
How the real estate industry is faring is also important. When real estate sales are buoyant, the market is flushed with confidence and directors’ earnings are high, rent rolls tend to be more valuable.
Then there’s the micro factors which relate to the rent roll in question. In some locations, rent rolls are tightly held with few opportunities for rent roll buyers to acquire or expand portfolios, meaning the price tends to go up.
Rent roll valuations can do well in times of economic uncertainty or flat real estate sales as property players value the consistent, recurring income.
When there is a rent roll sale, a retention period is put in place to protect the vendor from the loss of landlords after settlement.
Landlords are notified of the change and given the opportunity to review the new property manager.
Retention periods for Melbourne rent roll sales (residential) are typically 60-180 days with commercial rent rolls seeing longer retention periods of six months or more.
Some large rent rolls purchases have multiple retention periods.
Banks typically view a Melbourne rent roll business as highly stable and so finance for experienced players is usually available.
Normally, lenders will extend finance of around 60-70% of a rental roll valuation, excluding notional income from vacant properties.
Before banks or lenders commit to funding, they will first consider a number of factors alongside their rent roll calculator.
- Stability of rent roll income – a key factor
- Property types and location – e.g. portfolios with more houses than units
- The experience of the rent roll purchaser and property management team
- Multiple owners – depending on the ratio of properties per owner, a different rent roll multiplier may be applied if banks see these clients as high risk
- Management Authorities – banks will want to ensure authorities are legally compliant and allow assignment to a new owner.
When buying any business, it’s important for the purchaser to undertake a thorough due diligence so they know what they are getting.
A due diligence is an investigation, audit or review to confirm facts around the rent roll business for sale and confirm statements made by the seller are true.
Buyers should carefully consider the rent roll report and financial records with a focus on these areas in particular.
- Multiple Owners – to see if a different rent roll multiplier is required
- Vacant properties – may be excluded if they have been vacant for 60 days or more
- Any rental discounts or reductions in commissions
- Property management fees – do they match those recorded in the property management software and on the authorities?
- Authorities – are they legally compliant, up to date and allow assignment to a new owner?
- Rental bonds – does the property management software reflect what’s held in the Rental Bond Authority?
- General record keeping – has it been well conducted, been audited, are there compliance procedures in place?
A great guide for preparing a rent roll for sale or any other real estate business is to put yourself in the shoes of the purchaser or rent roll broker.
The first action you should undertake is to ensure management authorities are legally compliant, up to date and allow assignment to a new owner.
Your rent roll broker will help you get your asset sale ready by working through these steps to improve your rent roll multiplier:
- Review rent levels across all portfolios
- Take the steps necessary to maximise rental returns
- Review commission levels and other income associated with your rent roll business
- Put the best possible cost recovery practices in place.
- Review your property management software. Upgrading to the latest technology could increase the value of your rent roll business.
- Keep your property management staff turnover to a minimum. A stable team is an important part of your asset’s value
- Ensure your rent roll business has a separate income statement. It must be able to be analysed as a real estate business separate from your sales division.
Ironically, a rent roll valuation can actually improve during hard economic times as buyers value stable, reliable income. We often find there is an increase in rent roll purchases when the real estate sales market is subdued.
The major exception to this is where interest rates are high, which increases the cost of borrowing for a rent roll purchase.
Flat economic times can improve rent roll valuations, and a well-managed rent roll often proves to be a key asset of any growing real estate business.
It’s important not to neglect other assets incorporated in the rent roll. If there are opportunities to build relationships with landlords and tenants who may go on to be property buyers in the future, that can also increase rent roll multiplier.
From time to time, BuxtoniQ gets approached by buyers who need help with rent roll finance to fund their purchase.
There are three ways we can help.
Firstly, we can provide the right advice to prepare your real estate business so it will be attractive to banks and other financial institutions who extend rent roll funding to purchasers.
Secondly, we may be able to introduce you to an equity partner or buyer. BuxtoniQ has an extensive contact list of Melbourne’s real estate leaders who may be interested in collaborating on a purchase.
Many of the opportunities we come across have owners open to selling a share of their rent roll business or real estate agency rather than 100%.
Thirdly, through our network, we can refer you to banks and other lenders known to be active in this space.
It’s quite common for first time rent roll buyers or rising stars in the real estate industry to collaborate with larger real estate businesses.
At BuxtoniQ, we can help you find the right opportunity, arrange a good partner match or find the right rent roll business for a new owner.
BuxtoniQ is a unique firm, founded by three of the most recognised names Melbourne real estate.
We bring a wealth of experience from across the industry, including expertise from business sales, rent roll growth strategies and people and culture.
Leveraging our insight and extensive database, we’ll deliver the best pathway for you to realise your ambitions, strike the right agreement and arrange a smooth transition.
- An extensive contact list of real estate business owners and directors
- Proven methodology
- Always discrete with information
- You stay in control throughout
- Proactive – we don’t just list, we actively market
- Dedicated media and an extensive database
- Diligence – detailed focus on terms and conditions
- We invest our time to understand your unique requirements
- A comprehensive review of your environment and operations to uncover any hidden value.
BuxtoniQ brings knowledge of business structures, people, systems and uncovering value to every deal. This gives you a real advantage in making your transition smooth and profitable.