Selling or buying a rent roll? At first glance, analysing one might seem pretty straightforward, but there’s actually more to it than meets the eye. Whether you’re looking to sell your portfolio or size up a new opportunity, understanding what really drives rent roll pricing is key.

Here’s a break down of the factors that can have the biggest impact on price.

 

1. Average Annual Management Income [AAMI]

This is the average amount you earn per property each year. Naturally, the higher the AAMI, the better. A strong AAMI means stronger cash flow and therefore is a key metric when assessing rent rolls.

 

2. portfolio location

Just as in sales… location matters. Rent rolls in high-demand areas like inner-city suburbs or fast-growing regions tend to fetch better prices. Conversely, regional portfolios might be priced a bit lower due to the smaller buyer pool or stricter lending criteria from banks.

 

3. geographical spread

A concentrated portfolio is generally easier [and cheaper] to manage. If your properties are spread out over a wide area, it can take more time to service and operational costs can rise, which might impact a buyers opinion of value.

 

4. property management fees

Your fee structure says a lot about your business. Higher fees can suggest a stronger business with loyal clients who value your service. Lower fees might point to a portfolio that attracts price-sensitive landlords, which can sometimes make buyers cautious.

 

5. multiple property owners

Having landlords who own several properties can be a double-edged sword. It may be efficient while they’re on board, but if one moves on, you could lose multiple properties from your portfolio in one hit.

 

6. rent arrears + vacancies

High arrears or vacancy rates can ring alarm bells for buyers. These issues can cause cash flow headaches and increase the workload for the owner, which ultimately lowers the value of the portfolio.

 

7. owner involvement + property management team

Buyers will want to know how hands-on the current owner is, and how stable the property management team is. High turnover within the property management team may point to more fundamental problems in the department.

 

8. additional fees + charges

While fees like letting, inspection, or administration charges aren’t included in the rent roll pricing formula, they do add to your overall income and can improve the attractiveness of your rent roll.

 

9. industry conditions

The state of the real estate market and broader economic conditions all influence what buyers are willing to pay. Like all markets, in tougher times, buyers might tread more carefully… so timing can be just as important as the numbers.

 

10. growth potential

Buyers love seeing room for growth. Whether it’s through better marketing, new service offerings, or strategic acquisitions, having a plan for expansion will be a positive in the eyes of many buyers.

 

11. comparable sales

While it can be challenging to find reliable sales data on other rent rolls, any insights you can gather will help benchmark your expectations. Understanding the market and the attitude of lenders will help you understand how much a buyer may be willing to pay.

 

12. seller’s post-sale plans

What the seller plans to do after the sale can have a big impact on how buyers perceive the opportunity. Buyers will tend to feel more comfortable if the seller is retiring completely as they perceive more risk when a seller intends to stay in the industry.

 

what this means for you

 

Many factors impact the pricing of a rent roll, and every portfolio is different. To make sure you get the best possible outcome, it’s essential to speak with an experienced business broker, real estate professional, or other advisor who specialises in rent rolls. They’ll help you understand the unique value drivers of your portfolio and how the price is determined.

 

we’re here to help! 

 

Considering the above factors, it’s important for sellers to mitigate potential risks, and build on the positives, to maximise the sale price of their rent roll. At businessDEPOT, our experienced brokers have expertise in analysing rent rolls and can provide a thorough evaluation of the portfolio, helping you to determine a fair and considered price based on the specific attributes.

To find out how we can assist you, please give Brad Dean a buzz on 0417 886 352 for a confidential discussion.

Alternatively, please feel free to reach out to us at agencybroking@businessdepot.com.au.

 

general advice disclaimer

The information provided on this website is a brief overview and does not constitute any type of advice. We endeavour to ensure that the information provided is accurate however information may become outdated as legislation, policies, regulations and other considerations constantly change. Individuals must not rely on this information to make a financial, investment or legal decision. Please consult with an appropriate professional before making any decision.

 

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