I want to buy rent rolls and build up my Department quickly so that I can benefit from the economies of scale achieved and to provide a greater selling pool for my Sales Department.  The problem is that I really don’t know what I should be looking for in an acquisition.  What are the pitfalls?”

Whilst REMA will not act as a buyer or seller’s agent in either purchasing or disposing of rent rolls, both Tony and Anne Warren have had extensive experience in acquiring rent rolls through their involvement with a public listed company that acquired in excess of 40 individual rent rolls over an 18 month period.  This experience gave them an insight into what is needed to prepare a rent roll for sale so as to maximise its value and what to look for when acquiring one.

Most prospective purchasers of rent rolls are not fully aware of factors that affect their value.  Some of the variables in establishing a rent roll’s value can include –

 

  • The company’s reputation in the area
  • Recent acquisitions of rent rolls
  • Low average commission and letting fees
  • Minimal (if any) ancillary fees
  • Authorities less than one year
  • Diverse geographical spread
  • Owner to properties managed ratio
  • History of management losses
  • History of high staff turnover
  • Inadequate documentation
  • All-inclusive management fee

 

There are also other factors that must be taken into consideration when acquiring a rent roll, some of which include –

 

  • Software conversion
    • The cost to extract and integrate data and this should be at the seller’s cost
  • Retention period
    • Historically, this has been a very limited period normally of only three months.  However, many other industries have more extensive periods, mostly twelve months and real estate should be no different
  • Retention amount
    • The amount of the purchase price to be withheld for the retention period which should be in the vicinity of 20% of the purchase price
  • Restraint period
    • The period of time the seller agrees not to participate in the management of rental properties and given the value of the average acquisition, it would be reasonable to assume that thirty six months would be a fair time period.
  • Costs during retention
    • There will be costs incurred due to the seller’s management of the rent roll and these should be deducted from the retention amount
  • Staff payout
    • All entitlements must be paid out by the seller prior to settlement
  • Reject properties
    • The contract should include the ability to reject properties that are considered non-viable or unproductive – limited to 5%
  • Referral of future business
    • All enquiries received by the seller during the restraint period should be referred to the purchaser who would pay a referral fee to the seller

 

REMA can provide an invaluable service to either the buyer or seller of rent rolls.  Our experience allows us to determine the strengths and weaknesses of each business, the areas that buyers are most conscious of, and how to maximise or minimise the value of the business.