Sell for More Trivia is a weekly blog series that playfully presents a trivia question about commercial real estate.
A rent roll is one of the most basic and most necessary documents in all of commercial real estate.
Surprisingly, when many sellers contact us to start the process of selling their commercial property…they don’t have one. So we build one for them.
No document is more fundamental to quickly understanding an investment property than the Rent Roll.
So what exactly is a rent roll?
A rent roll is a list of the rental units in an income property. It shows who the occupant is and what the major terms of their lease are.
The purpose
Rent rolls are used by landlords and property managers in the daily management of properties.
The purpose of the rent roll is to provide a quick snapshot of expected rental incomes along with important aspects of each lease.
The average lease is typically longer than 10 pages. If a buyer wants to see a financial overview of your property, they don’t want to see 10 leases (100+ pages); they would rather want to see a rent roll document that pulls the financials together in one place.
When you create a clear rent roll that has all of the information that you could want to reference in a quick moment, you’ll be making a wonderful reference document for yourself.
A good rent roll will be both easy to update and easy to understand.
Best uses for a rent roll
Landlords and property managers use rent rolls to analyze an investment property. For example, a property manager can quickly glance at the document to see how many tenants have leases expiring within the next couple of months. They can then reach out to those tenants to see if they plan to renew. If not, the property manager can start marketing the units.
Landlords also use a rent roll document to do market research by comparing the average rent on their units with those currently on the market. If their rents are lower, they can list those with expiring leases at the higher market rates and boost their income.
Investors and buyers use rent rolls to analyze a potential investment. A prospective buyer might notice that the majority of the leases on a rent roll report are at above-market rates and expire in the next couple of months, suggesting that rental income could decline significantly after acquiring the rental property.
On the other hand, a rent roll analysis could tell an investor that there’s room for rent increases given what comparable units are going for on the open market. Because the rent roll provides a current snapshot of a property’s gross rental income, it’s a crucial document for valuing commercial real estate, since investors focus on a property’s net operating income, not comparable values.
Example
When you combine the rent roll with annual operating expense estimates you’re able to calculate the property’s Net Operating Income. We call this document the property’s Financial Snapshot (example below).
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About Beau Beach, MBA CCIM
Beau is a tenacious Commercial Real Estate Broker, entrepreneur and adoring father of four. His clients appreciate his no-nonsense demeanor and his legendary work ethic.
Beau leads Beachwood which is a commercial real estate broker for sellers in the Nashville, Milwaukee and Florida markets.
He’s earned the revered “CCIM” designation which is awarded to the top 6% of all commercial real estate brokers.
He’s the author of the books The 3 Reasons: Why Most Commercial Properties Don’t Sell and True Wealth: What Every Seller Should Know About 1031 Exchanges.
Beau can be reached at 800-721-3287, click to schedule a call or Beau@soldbybeachwood.com