Whether you are a commercial real estate investor, a rental property owner, or a rental property manager, it is necessary to understand a property’s rental income stream. Rent roll is a vital tool for doing this.
If you want an easy way to identify the rental income generated by a commercial property, it’s important to keep an up to date rent roll. Real estate investment, rental property ownership, or property management becomes easier when you do. Let’s take a look at why that is by digging into:
The purpose of a rent roll
What goes into a rent roll
Who uses a rent roll and why
How to maintain your rent roll
When rents are due
When leases expire
Any past due rents
All information needed for a rental listing
Tenant contact information
Lease details
By seeing this in one document you can do an easy review of vacancy periods and tenant occupancy levels, and gain valuable insight into the difference between the rent expected and the rent collected.
If you deal in rental property, whether as an investor, an owner, or a property manager, a rent roll is a valuable decision-making tool. It allows you to make informed decisions about pricing, marketing, and leasing, and buying and selling. It helps you plan for future expenses and investments. Without a solid understanding of your rental income, you could be leaving money on the table or missing out on opportunities to grow your real estate portfolio.
What Goes into a Rent Roll?
A rent roll is used for different reasons for different stakeholders in the commercial real estate business. So, what goes into this important document?
A rent roll is a current snapshot of valid leases and includes the following details:
Property address and description
Rental unit description (square footage, number of bedrooms and bathrooms, special features)
Owner and management company information
Tenant contact information
Lease details (term, rent, deposit, and fees)
Any extra amounts paid monthly
If you are looking for an example of a rent roll, it could show a property’s monthly rental income rolled up to an annual summary. This is not always as valuable as seeing what your property is bringing in at the moment. This up-to-date rent roll allows a property owner, an investor, or a property manager to gain an understanding of current cash flow.
Who Uses a Rent roll?
A rent roll is a useful tool for anyone involved with an income producing property. From real estate investors to rental property owners and property managers, it helps in understanding the level of current income coming from a property.
For Property Owners
For landlords, a rent roll shows an expected income that repeats monthly. It provides easily accessible yet detailed information that assists in forecasting the profitability of your property. It is an easy way to review current and past tenancies to gain insight on property history, including vacancy details and lease expiration dates. Keeping the revenue stream of an income property flowing depends on keeping the tenancy rate high. Analyzing your property’s rent roll can help minimize vacancy periods.
For Rental Property Managers
For rental property managers, a rent roll shows all current valid leases for all properties under management. It is a critical document that assists to improve your business outcomes. It makes it possible to have the information to manage a property efficiently and cost-effectively in one document. It allows for the convenience of looking at multiple properties at once and making effective decisions that keep your management on track and profitable.
With a rent roll, a property manager can easily:
Identify tenants behind on rental payments
Review current leases and see upcoming expirations
Send out timely renewal notices to current tenants
Prepare rental listings and market efficiently to minimize vacancies
Conduct market research and analysis to remain competitive with rental rates
Review security deposit and fee payments
For Commercial Real Estate Investors
A rent roll portfolio for a real estate investor includes all the rental units an investor owns and the details of each unit. It “rolls up” the portfolio’s rental income into one document. Any business plan for real estate investors will include a rent roll portfolio as it shows a commercial property’s value and stability. A rent roll can also help you identify opportunities for increasing cash flow and a portfolio’s financial performance.
It is important to keep a rent roll for each individual property and your portfolio as a whole as it represents the value of the income property. A rent roll is also used for real estate lenders to gain an understanding about any of your commercial property assets. As an investor, it is vital to keep your rent roll on track for lenders.
If you are new to real estate investing, you will discover that a rent roll is necessary for doing business. If you are looking for how to find a mentor for real estate investment, it will be helpful in building that relationship. Business Insider mentions some of the best podcasts for real estate agents in commercial property will focus on leveling up your knowledge, and learning to start a rent roll is a part of that education.
By providing property details such as square footage, the number of bedrooms and bathrooms, and the rent amount paid, a rent roll is also useful for market research. It can help you make quick property comparisons in the rental marketplace for potential investments.
A rent roll is also a crucial document for analyzing a potential real estate investment. It can reveal important data to calculate the stability of an investment as well as red flags for a risk that might not be worth taking.
A few things you can learn from a rent roll before making a commercial real estate investment are:
- The timing of current lease expirations to get a handle on the number of potential vacancies coming down the pike. Knowing this makes it possible for you to plan for these vacancies or to step back from the deal.
- Whether a seller will renew leases that are due to expire before the deal goes through. This can help ensure that the current rental income continues after the deal closes.
- Discovering how long tenants have lived on the property. A seasoned tenant, one who has lived on the property for at least six months and has paid rent in full and on time, can point to a better investment than a tenant that may indicate a possible eviction or vacancy popping up soon after the deal goes through.
- Figuring out if the rents being collected are below market rental rates in the area. This can be a potential opportunity for you to increase profitability as leases end.
Buying or Selling a Rent Roll
For prospective buyers, a rent roll is an asset to add to your real estate portfolio. The value is contained in the monthly income that comes with owning the property. Understanding this revenue stream is important. Shorter lease terms and higher vacancy rates lower the value of a commercial property asset and may not be something to add to your portfolio.
For example, a longer lease term has a higher value because it can be depended on for a longer period of time. A twelve-month lease equals twelve months of income. A three-month lease is only three months of income. If a lease expires in three months, then the potential for a vacancy is also sooner. In addition, if a property shows a high ratio between the number of units and the number of current vacancies, it can forecast a potential problem with the property.
It is also crucial for you to understand the legal implications and tax implications involved in buying and selling a rent roll. For income tax purposes, the sale of a rent roll usually falls into an asset category that is normally treated as a capital gains tax or a capital loss.
Maintaining This Vital Document
As such a valuable tool in determining the current and future profitability of a property, it is important to keep an accurate rent roll by updating it regularly and ensuring it is current. Building the maintenance of this vital document into your business procedures is crucial. Ensuring an efficient rent roll process supports your profitability.
Real estate assistants can help you keep your rent roll up-to-date, accurate, and working for you. A virtual executive assistant trained in how to calculate property value from rent or commercial property management can support quicker and easier transactions that help protect your assets.
As a real estate investor, a rental property owner, or a rental property manager, a rent roll is indispensable. Your interest in fundamentally understanding the income stream generated by a commercial property is best served with an accurate, organized and up-to-date rent roll. Commercial real estate investment and management is a better business proposition with this valuable and necessary tool.
