We’re finding a lot of clients right now are getting opportunities to acquire rent rolls and they’re asking us “should I do it?” Of course, the answer is always, “it depends”.
So I’ve prepared a quick video [and transcript below] to help you understand the things you need to consider before undergoing a rent roll acquisition.
Hello again, Craig from businessDEPOT Real Estate here. Today I want to talk to you about buying a rent roll.
I’ve got a lot of clients at the moment who are getting opportunities to buy rent rolls and they come to us and ask “should I do it?” And the answer is always, it depends.
It depends on where you are at the moment, the size of your current rent roll, the size of the rent roll being acquired and what spare capacity you’ve got within your team. That spare capacity in your property management team can be the driver of whether it’s a good idea.
Let’s look at some really rough numbers on one, just to demonstrate how it can work. Let’s say for every property you’ve got, you earn $1500 a year of fees.
You can finance an acquisition of say 150 properties. That size acquisition is going to cost you about $675,000 – but it will drop more revenue into your business.
After running the numbers, let’s say that the rent roll will keep bringing in about $225,000 of fee revenue a year.
If you’ve got some excess capacity and you are buying 150 properties, you may only need to put on one more property manager to service the acquired properties. That might cost you around $80,000. Once you throw in their allowances and other costs, maybe some technology and subscription updates, that might cost you another $10,000.
Now, importantly, you’re going to have to pay the bank back if you buy this. Over a 10-year period of principal and interest, that’s about $85,000 a year.
Add all these up, and we’re at about $175,000 of cash out the door, which is about $50,000 less than what the rent roll will bring in. So immediately cash flow positive while paying back the bank for the acquisition. So anything that can drop another $50,000 into your pocket after paying all of the costs that go with it is a great acquisition.
we’re here to help!
If you’re looking to acquire a rent roll you can check out our Agency Broking page for available listings.
And if you do get an opportunity to look at a rent roll, please feel free to reach out to myself or the businessDEPOT team at 1300 BDEPOT. We can help you run the numbers and determine if it’s right for you.