If you are a landlord then you already know what the term rent roll means. A rent roll is a list of tenants that includes the amount of rent for each tenant and their lease expiration date. It’s a comprehensive book of business, basically. It’s important for the individual landlord in terms of knowing who is occupying their building at what rates of rent, and when they can expect them to be vacating. Rent roll is an important planning tool in order to keep buildings at maximum occupancy. And, according to business expert Phil Thow, it is important to know for potential buyers of buildings with tenants.
Just as important as knowing the rent roll is for the current landlord, it is for a potential buyer says Phil Thow. Being able to analyze the rent roll will give a potential buyer insight into exactly how much the building brings in terms of rent by month, or by year. These figures can be used against the expected expenses in order to determine the profit potential of the building being considered. It also will give information as to when you can expect to have to bring in new tenants, or renew current leases. According to Phil Thow this important information should be analyzed and quantified closely before taking the plunge and purchasing the property.
You should consider analyzing the rent roll just like any due diligence when purchasing assets. It is the lifeblood of the property and needs the same careful consideration as the investment potential of the asset itself outside of the current income. Knowing exactly what is currently being charged for rent will give the buyer the opportunity to compare to other rents in the area to see if potential is being maximized. If it’s not, the buyer will know ahead of time whether future contracts will need to be amended in order to hit the intended profit target. Phil Thow says to take rent roll very seriously when considering a building purchase.
As you can see, the rent roll of a building provides much needed decision making information for both current and potential landlords. Phil Thow underscores the need to understand and plan for the inevitable change in tenant status in order to achieve the goals you wish to from the property. Like any business, knowing where cash flow and profit will come from is of the utmost importance.