What’s my rent roll worth?

“How much?” “Can you repeat that?” These are the words a regularly hear from agency principals when we discuss the potential value of the Rent Roll in their business. Many owners have not considered that their troublesome Property Management business, the Department that gets all the complaints, is worth so much money. But on the flip side, they are even more shocked when they discover that their sales business, the Department that gets all those glowing testimonials, is worth next to nothing and is potentially 3 months from bankrupt at any moment in time.

Who’s got the best real estate agency?

I once entered in to discussions about a merger with a successful long-term sales agency, they did not do property management, but they had quite a large sales team the performed consistently. My sales team was smaller and we had approximately 300 properties under management at the time.

Our discussions were very positive and our potential merger represented positioning our new found practice as the most powerful agency in the region. Our values were aligned and we agreed on topics of ethics and good practice. It was exciting times for both of our businesses.

The time eventually came to look at the financial elements of the merger. When we valued the businesses, the other party was completely shocked that their business held very little to no value as an asset and were even further disappointed that they would actually need to put in money to balance out the shareholdings. How could my smaller business that was quite young in comparison to their long-standing organisation be worth more than theirs? 

It is all good and well until egos are hurt

Needless to say, the merger did not proceed. Their excuse for dropping the deal was that they had received some advice and decided that they didn’t wish to grow or try to be the best agency in the area anymore. But even as those words came out of his mouth, I think we all knew that they couldn’t come to terms with the wide gap in the financial position of our two agencies.

I was disappointed but also proud of what my business had achieved over a short time. However, within the next three months, following our negotiations, that agency recruited a Property Manager and started a Rent Roll of their own.

The value of your Rent Roll is the value of your Agency! 

There is no other way to put it. That area of your business that just started as a by product of completing sales, that area of your business that keeps causing you issues and that area of your business that makes a tiny amount of money in comparison to the large sales commissions rolling in each month, is worth more than any other part of your business.

There will be a time in the lifecycle of your business when it is time to realise the value of your business. This could arise due to a commercial need to sell, you may wish to exit and cash in, a random buyer from outside of the marketplace may make an offer, you may look to merge with another agency or there may be a need to conduct an internal share sale within the business for succession. Eventually, you will need to sell the business. When is that time for you?

Don’t leave it until it is time to sell before you do something

When the that time comes you will want to prepare the Rent Roll for sale and make it as attractive as possible to increase its value. By presenting I mean making it inspection ready for a buyer to conduct a complete Due Diligence of every file and every property. You need to have it clean and declutter the excess that is not required. 

You need to do things such as ensuring every property has an entry condition report, a bond is lodged and that the system matches the agreements. You need to get those low fee properties up, make sure that tenants are on fixed term leases and that any of your special offers no longer apply to the files. Oh, and take your own properties out of the list.

How is the Rent Roll value established?

In a main part, the value is established by applying a multiplier to the total management fees generated per year. The multiplier is generally expressed as a dollar figure and is applied to every dollar earnt in management fees.

Eg: $2.65 (The Multiplier) x $450,000 (Total Annual Management Income T.A.M.I.) = $1,192,500 (Asset Value)  

So, what is the multiplier for my rent roll? The multiplier is based on supply and demand, every market place and time varies. There is historical sales data that Rent Roll Brokers have access to but it all comes back to Presentation, Promotion and Price when you are on the market. It needs to look good to the buyer, the buyers need to know about it and the price need to show value.

20 factors that affect a Rent Roll’s market value

The Multiplier is influenced by the overall condition of the Rent Roll which includes any of the following factors.

1. Average weekly rent.
2. Average commission.
3. Type of Properties.
4. Arrears.
5. Vacancy rates.
6. Due Diligence.
7. Current court actions.
8. Number of Properties.
9. Type of Landlord.
10. Time in operation.
11. Staff and wages.
12. Supply and demand.
13. Geographical spread.
14. Owner : Property ratio.
15. Extra Fees & Charges.
16. Current interest rates & economy.
17. Rent Guarantee arrangements.
18. Overdue & outstanding work.
19. Compliance to legislation.
20. Choice of broker.

If you are concerned with the value of your business I would suggest you consider having the Rent Roll valued by a broker or have a full business Diagnostic conducted to understand your position and your options.