Covid-19 has brought with it significant change, accelerating trends already in place and introducing new dimensions to what we now view as ‘normal’.
Just consider it was only a year ago when video conferencing was infrequent and 6% of Australians worked from home, far short of the 35% peak in 2020.
Clearly, it’s a time of fundamental change. Yet it’s also a time where opportunities abound for the adaptable director, but with many challenges too.
The ones to look out for include changes to bank lending, particularly Loan to Value Ratios (LVRs) and threats to the economy as the world recovers.
The fundamentals in our new market are adaptability and performance.
Stable, reliable income will be of paramount importance and so I think it’s likely rent rolls will be the standout real estate asset in 2021.
That makes the ability to deliver rent roll growth or quickly realise the sale of all or part of a rent roll an important risk mitigation strategy.
To ensure a rent roll is ‘sale ready’, directors need to take care of some essentials.
Firstly, management agreements must be legal and assignable to a new owner. If agreements have not been executed properly or are assigned to the wrong entity, this can significantly impact a rent roll valuation.
Secondly, rental and commission rates should be at market levels (in fact, this is a key priority at any time).
Thirdly, the owners should prepare a Business Information Package which summarises key business metrics. This is a valuable tool not only for a rent roll sale but for an urgent application for rent roll funding.
Before preparing a Business Information Package, owners should have an experienced rent roll broker conduct a business health check to ensure value is being maximised.
Perhaps the most common question we get asked at BuxtoniQ is: What is the rent roll multiplier I can anticipate to determine my asset’s value?
Currently, we can expect a rent roll for sale in Melbourne to attract a price multiple of between 3 – 3.4 times annual income in a prime area.
Our rent roll calculator also reckons on an annual return of $1,100 – $1,600 per authority.
It’s important to note a rent roll valuation can alter quickly due to changes in the economic or industry environment.
But rent roll values are also a product of their location and makeup of the portfolios.
In prime areas, they will attract a premium thanks to a market shortage of rent roll sales.
Like the market price for real estate agencies themselves, the best way to secure a high rent roll multiplier is to ensure the underlying business is optimised for performance and is ready for sale.