As a property management agency, you know that building a successful sales force is crucial to growing your business. But, relying solely on commission-based sales can be unpredictable and inconsistent. That's where a rent roll comes in - it's an income-producing asset that can provide you with reliable, consistent income.
If you’re not sure what a rent roll is and how to create one, you’ve come to the right place. We’re talking everything rent roll, from the costs of setting one up, to figuring out its value to your agency - let’s get rent rolling!
What is a rent roll?
If you're not familiar with the term, a rent roll is simply a list of all the rental properties you manage, including information about the tenants, their lease agreements, and the rent they pay. Using a rent roll, you can get a clear overview of your agency's current and projected income.
But a rent roll is more than just a financial tool - it's a powerful way to scale your agency and position it for future growth.
As you add more rental properties to your portfolio, your rent roll grows, and so does your income. Having a strong rent roll can also increase your agency's appeal to potential buyers if you decide to sell.
Why does your agency need a rent roll?
A rent roll can prove to be an agencies most valuable asset, and here’s a few reasons why:
Predictable and Consistent Income
As mentioned earlier, a rent roll provides a consistent source of income for your agency. Unlike commission-based sales, you can rely on this income to cover your agency's fixed costs and even invest in future growth.
Better Financial Planning
Having a rent roll allows you to better plan and budget for your agency's future. You can use it to track your income and expenses, identify trends, and forecast future revenue. This helps you make informed decisions about your agency's growth and investments.
Increased Appeal to Buyers
A strong rent roll can increase your agency's appeal to potential buyers if you decide to sell. Buyers are often looking for a stable, reliable source of income, and a strong rent roll can demonstrate that your agency is a valuable asset.
Improved Tenant Management
A rent roll can also help you manage your tenants more effectively. You can use it to track lease agreements, rental payments, and other important tenant information. This makes it easier to identify and address any issues that may arise, such as late payments or maintenance requests.
As your rent roll grows, so does your agency's potential for growth. With more properties under management, you can increase your revenue and expand your operations. This allows you to take on larger projects and grow your business in new and exciting ways.
Better Property Valuations
Lenders and investors use the rent roll to determine a property's net operating income (NOI), an essential metric used in calculating property valuations.
"Your rent roll is a lead generator for sales. Plus, by setting up adjacent revenue streams (such as selling landlord insurance or utility connections to your customers), you can boost the income you’re generating from every property on your rent roll.”
How much does it cost to establish a rent roll?
If you’re considering setting up a rent roll, the cost will vary based on your agency's size and the number of properties you manage. Here’s the most common expenses you’re likely to incur:
- Marketing and advertising expenses : Your marketing effort can cost anywhere from $5,000 to $20,000 to build your rent roll, depending on the size and scope of your agency.
- Software and technology costs : Property management software can range in cost from $500 to $10,000 per year, depending on the features you need. Online payment systems may cost an additional 1-2% of each transaction.
- Staffing costs : The cost of hiring staff will depend on their experience level and the average wages in your area. Property managers may earn between $50,000 to $80,000 per year, leasing agents may earn between $40,000 to $60,000 per year, and administrative staff may earn between $35,000 to $50,000 per year.
- Office expenses : Rent for a small office space in a suburban area can range from $20,000 to $40,000 per year, while utilities and other office expenses can add an additional $5,000 to $10,000 per year.
For a company managing 100 properties with a moderate marketing budget, basic property management software, and a team of three consisting of a property manager, leasing agent, and administrative staff, the initial cost of establishing a rent roll in Australia could range from $150,000 to $250,000 per year.
How is rent roll value calculated?
Residential rent rolls are commonly calculated using the AAMI (average annual management income) method. The AAMI method we describe below is used for rent rolls that have varied rent and/or management fees, and uses the formula:
AAMI = (Total Annual Income x Management Fee Rate).
It also considers the average weekly rent and average management fee for each property in the portfolio.
Here's a breakdown of how to use this formula to estimate the value of a rent roll.
Begin by calculating the total annual income of your rent roll portfolio using the following formula:
Total Annual Income = (Average Weekly Rent x Average Management Fee) ÷ 7 x 365 x Number of Properties under Management
Let's take an example of a rent roll with 100 residential properties under management, an average weekly rent of $300 across all properties, and an average management fee of 8%. We can insert these values into the formula like this:
Total Annual Income = ($300 x 8%) ÷ 7 x 365 x 100 = $334,285.71
Once you have this figure, multiply it by the management fee rate (typically around 7-10% of the annual rent) to find the AAMI value.
We're going to use a management fee rate of 8% for this rent roll portfolio:
AAMI = $334,285.71 x 8% = $26,742.86
Once you have calculated the AAMI, apply a multiplier to estimate the value of the rent roll.
In general, this multiplier can range from 1.5 to 3 for residential rent rolls and is based on factors like the location and type of properties as well as the overall performance of the portfolio. A professional rent roll evaluator or broker can help ascertain an accurate multiplier for you.
For this example, we'll use a multiplier of 2.5, which is relatively high and is typically associated with properties that have stable, long-term leases, strong tenant covenants, high occupancy rates, and long-term management agreements.
Estimated rent roll value = $26,742.86 x 2.5 = $66,857.15
How to build a rent roll organically
While you can always buy an existing rent roll, organic rent roll growth can be cost-effective, and it helps you build relationships with owners and tenants from day one.
Here’s how you can build a rent roll organically from scratch:
- Referrals: Your existing clients can be your best advertisement! Encourage your satisfied clients to refer you to their friends, family, and colleagues who may be looking for property management services.
- Networking: Building relationships is key to a successful business. Attend industry events, join local real estate associations, and get involved in your community in order to build your network and establish mutual respect. Whenever real estate agents and property owners are in need of property management services, make sure it’s your name they remember.
- Online Presence: Stand out as a trustworthy industry expert that keeps up with the times by establishing a strong online presence. Leverage your social media, website, and other digital marketing efforts by sharing informative content and engaging posts that demonstrate your expertise and knowledge of the industry.
- Excellent Service: Word of mouth from happy customers goes a long way in establishing trust in your business. Provide excellent service to your existing clients to encourage them to renew their contracts and refer you to others. This can include maintaining a reputation of providing timely communication, proactive maintenance, and efficient handling of any issues that arise.
- Specialised Services: Consider specialising in a particular niche, such as student housing, luxury rentals, or commercial properties. This can help differentiate your services and attract clients with specific needs.
- Partnering with local businesses: Establish mutually beneficial partnerships with local businesses and service providers, such as cleaning companies or maintenance contractors. You’ll be strengthening your reputation in the local community while providing great opportunities for referrals.
Building a rent roll organically will take some time and effort, but the long-term benefits are undeniable. By focusing on providing excellent service and building strong relationships with customers and partners alike, you can establish a strong reputation as a reliable property management provider.
How to effectively manage your rent roll
1. Harness the best tech
You should invest in an all-in-one tech platform that doesn't need external integrations - the key is finding a platform that fits seamlessly into your team's existing workflows.
One option to consider is proptech built by property managers, which is a great way to ensure your team is well-equipped and supported by technology that truly understands your processes.
2. Bring the right people into your business
As your rent roll grows, one person might not be able to manage your portfolio on their own. So you should build a team of property managers with expert knowledge to give your clients the human element that’s essential in building and managing relationships that last.
Also, keep in mind that the current state of the property management industry is marked by high burnout rates. You can tackle this issue by providing your staff with adequate support, empathy and encouragement to be their best selves while taking care of their well-being.
3. Look for a stress-free way to manage your rent roll
We have a solution built by property managers who understand what tools are needed when managing properties and dealing with clients. With an all-in-one tool powered by the best people in the business, :Different helps agencies manage their rent roll without stress.
“ The big reason why many agency principals don’t consider growing a rent roll is due to the complexities of managing one and the high cost to get to a profit margin. But with a solution like :Different for Agencies, you can build your profile in the market and gain a sellable asset to fund your retirement.”
:Different for Agencies combines proptech with the human element of a team of property managers to supplement your rent roll management strategy. Not only do we help to grow and scale your rent roll, but we make sure you earn a guaranteed profit margin and retain the ownership of your asset. Book a demo today!
Disclaimer: The information provided on this blog is for general informational purposes only. All information is provided in good faith; however, we do not account for specific situations, facts or circumstances. As such, we make no representation or warranty of any kind whatsoever, express or implied, regarding the accuracy, adequacy, validity, reliability, availability or completeness of any information presented.
This blog may also contain links to other sites or content belonging to or originating from third parties. We do not investigate or monitor such external links for accuracy, adequacy, validity, reliability, availability or completeness, and therefore, we shall not be liable and/or held responsible for any information contained therein.