Understanding a Commercial Real Estate Rent Roll

A commercial property’s rent roll is one of the first pieces of paperwork that real estate investors and banks will request when examining potential rental property purchases or loan applications. Lenders and investors will have access to a significant amount of information from a rent roll, which they can employ to make informed decisions. 

You can keep it correct and up to date by being aware of the information it includes. It will be easier for people to utilize the material to evaluate risk if it is more accurate. 

Insights on Rent Roll and the Importance

A rent roll is a commercial real estate record that summarizes a property owner’s total rental earnings from various properties or units on the same property. Rent rolls are used by property owners, real estate investors, and property managers to monitor inbound rent, tenant data, rental unit turnover, and market values. 

Rent rolls are used by real estate owners for various investment properties, including multifamily apartment buildings, leased agricultural property, commercial real estate, and numerous single-family houses held by the same investor. Rent rolls are important for financing or taking a CRE loan. 

Rent rolls help potential tenants get information on the property and the unit they want to rent, like unit size, unit number, and security deposit in some cases. They also help tenants know  

Rent rolls can assist landlords in assessing the financial viability of a rental property when computing net operating income (NOI), internal rate of return (IRR), and gross rent multiplier (GRM). Additionally, it aids landlords and investors in keeping tabs on the flow of rental revenue from their properties. 

How to Analyze a Rent Roll

There are various ways to read a rent roll. It is not just about reading the rent roll. It is crucial to understand it. Here are a few things to know in order to read and understand a rent roll. 

Baseline Data 

When starting an analysis of the rent roll, request two copies: one for the current month and one for the same month from the prior year or two years if you can acquire it. Getting a baseline is your goal, along with figuring out which tenants are still on the rent roll and which have been evicted. 

Renewals and Renewal Rates 

The basis of sustainability is renewal. What is the renewal rate year over year? A score of more than 75% is considered excellent. A high renewal rate translates into a reduced turnover rate. Low turnover translates into better gross margins and lower turnover costs. Except if the market rate is higher than the current rent being paid, In this situation, a high turnover rate might be beneficial if it enhances rental income. These are just a few things among many. 

Advantages of an Updated Rent Roll

The information on the rent roll is presented in a way that makes it easy to read at a glimpse. It means it is vital to have up-to-date rent because: 

  • Having an updated rent roll assists you in calculating financial success in terms of cap rate and net operating income (NOI). 
  • The rent roll must always be up-to-date since investors want to evaluate it to understand the present and projected cash flow and the property’s performance before investing. 
  • A clean, updated rent roll can inspire trust in your real estate company. 

How to Get a Rent Roll Copy and the Data Needed to Create One

You can get a copy of a rent roll by requesting it from the property manager or management firm and the property owner. Only these two people can provide you with copies of the rent roll if you are a prospective buyer, investor or lender. 

Rent rolls are pretty straightforward to make; you can either build them from the start using an Excel spreadsheet tool or obtain a free template online. You can create a rent roll from scratch if you have specific data about the property. Some of these data include: 

  • Tenant’s name 
  • The monthly rent 
  • Start date of the lease 
  • Lease expiration date 
  • The landlord collected the security deposit. 
  • The due date for rent 
  • Date of rent payment 
  • Additional tenant expenses, such as utility bills and building service fees 
  • Monthly rent collected from all tenants combined. 
  • Total yearly rent received 
  • Name of the property owner or management company 
  • The property address is disclosed on the leasing agreement and in tax forums. 
  • Property kind – for instance, commercial, multifamily unit, etc. 
  • The unit’s floor area 
  • The number of beds and bathrooms 
  • Additional amenities like a garage, a storage shed, an extra housing unit, and so forth. 

This data is obtained from various sources, and you can use this data to construct a rent roll based on the information you need and how much of it you want to keep track of.  

What To Do If There are Discrepancies on the Rent Roll

You should use the same high-quality information you use for your property management operations in your data. However, there can be errors or discrepancies in your rent roll, but do not panic when you observe such discrepancies.  

Your database most likely contains inaccurate or out-of-date information if it has errors. You must conduct a system audit to identify the issue. Never allow data issues to develop in your system because doing so might cause serious mistakes. 

From the buyer’s perceptive, you can bring it up with the listing agent and see what they say. On the grounds that you completed your research into what was advertised and it has since turned out to be inaccurate, you might also attempt to cut costs by a few thousand.  

Finally, refraining from speaking outright is yet another choice. Sit tight until inspection and request that everything is rectified. If they object, you can raise this issue and use it as leverage. 

How to use Rent Rolls to Your Advantage

Rent rolls can be used to the advantage of both the landlord lenders and prospective investors in negotiations depending on the various situations. 

Owners use a rent roll to help their investment decisions for their property when a property management company manages the day-to-day activities. For instance, if the rent is below the market rate, landlords may consider doing a few simple repairs to increase rental prices and profit.  

Prospective investors could utilize the rent roll to evaluate revenue performance if the landlord opts to sell the property. Understanding what is expected based on the financial records of the property can tend to be the determining factor in whether you decide to buy or not.  

Lenders use the rent roll to assess an investment property’s security and profit-earning potential. Additionally, a rent roll for real estate only accounts for gross income and excludes expenses like mortgage payments, insurance, taxes, utilities, and upkeep. 

Management teams have the chance to make changes by examining a rent roll and the performance of each property. Additionally, having a thorough record of transactions and data at your fingertips makes carrying out daily tasks more effective, which in turn increases profits. 

Rent Roll is necessary for commercial real estate investing as well as getting the right deal.  

Finance Lobby is an online CRE lending marketplace that is making it faster and more efficient for commercial real estate brokers and lenders to find their perfect deals. 

November 9, 2022

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