DOC­U­MENTS AND DE­TAILS Deb­bie Palmer

YOU MAY NOT be think­ing of sell­ing your rent roll at the present time, but it needs to be in the best pos­si­ble con­di­tion when you are ready. And, says PPM Group CEO Deb­bie Palmer, the time to start prepa­ra­tion is right now.

Elite Property Manager - - Contents -

SELL­ING A RENT ROLL can hap­pen for a num­ber of rea­sons, and can be due to un­fore­seen cir­cum­stances that take peo­ple by sur­prise. When this hap­pens, tidy­ing things up - if they have not been looked af­ter - is of­ten not a quick process. Not only that, for a po­ten­tial buyer who is in a po­si­tion to choose, view­ing your rent roll vs one that has ev­ery­thing in or­der can be the dif­fer­ence be­tween view­ing a derelict prop­erty vs one that has been well-main­tained and cared for. How­ever, if you get your doc­u­men­ta­tion right from the out­set, you can avoid th­ese un­nec­es­sary pres­sures and sit­u­a­tions down the track.

In com­plet­ing due dili­gence on some rent rolls, I am of­ten shocked at the in­con­sis­ten­cies of the files or data and the many im­por­tant doc­u­ments miss­ing or not signed. I be­lieve that one of the lead­ing causes is be­cause th­ese agen­cies have failed to have stan­dard pro­ce­dures in place, or stan­dard ‘in-house’ ex­am­ples out­lin­ing how to com­plete im­por­tant doc­u­ments and agree­ments.

MUL­TI­PLE FAC­TORS

When sell­ing a rent roll, the in­dus­try stan­dard ‘rent roll as­set value cal­cu­la­tion method’ of a prop­erty is: the weekly rent / 7 days of the week x 365 days of the year x the man­age­ment fee % x the rent roll mul­ti­ple ($2.20, $2.80, $3.20, etc.). For ex­am­ple: $450 weekly rent / 7 x 365 = $23,464.29 in rental in­come x 7% = $1,642.50 an­nual man­age­ment fee in­come x $2.80 mul­ti­ple = a $4,599 as­set value of the prop­erty.

The rent roll’s ‘mul­ti­ple’ sale value is gov­erned by a num­ber of dif­fer­ent fac­tors. It should also be noted that the ‘sale value’ of a rent roll is cal­cu­lated dif­fer­ently to a val­u­a­tion that may be re­quired by a bank.

WHAT STEPS CAN YOU TAKE TO IM­PROVE THE AS­SET VALUE OF YOUR RENT ROLL? Au­dit your rent roll now so you know where you are at.

This process may take time, de­pend­ing on the size of your rent roll; how­ever, you can start with a strate­gic plan of au­dit­ing sev­eral prop­erty files each week.

Es­tab­lish in­ter­nal pro­ce­dures, sys­tems and reg­u­lar file au­dit checks.

En­sure that your doc­u­ments and files are well-main­tained and eas­ily ac­cessed.

Have a sys­tem for ar­chiv­ing old ten­ant files.

If you are us­ing an elec­tronic fil­ing sys­tem, en­sure that each doc­u­ment has a file name, such as ‘Ten­ancy Agree­ment’ or ‘Ten­ant Ap­pli­ca­tion Form’, rather than the ran­dom num­ber 20098KL009.pdf that can of­ten be gen­er­ated dur­ing the sav­ing process of the doc­u­ment.

Au­dit your man­age­ment agree­ments.

More than 40 per cent of man­age­ment agree­ments that we in­ves­ti­gate or au­dit are not valid. Dur­ing your au­dit process, I would rec­om­mend hav­ing one cen­tral folder, with A-Z ta­bles in­serted for the prop­erty street ad­dress, for all of your orig­i­nal man­age­ment agree­ments. Man­age­ment agree­ments are the fun­da­men­tal value of a rent roll, and if you do go to sell the rent roll it makes the process so much eas­ier than go­ing through ev­ery prop­erty file to lo­cate the agree­ment.

Doc­u­ment and note ev­ery ten­ant and land­lord con­ver­sa­tion.

Im­prove your ten­ant ar­rears rate and va­cancy rate, where pos­si­ble, and con­duct a key reg­is­ter au­dit. Con­duct a bond au­dit – you may be sur­prised at how many bonds are ac­tu­ally miss­ing or where the full amount has not been paid.

Fo­cus on in­creas­ing your rents where pos­si­ble, in ac­cor­dance with the mar­ket, and your man­age­ment fees.

This can be daunt­ing for some who are com­pet­ing with agen­cies that are dis­count­ing their fees; how­ever, there are ways to value-add and of­fer spe­cial dis­counts to win the busi­ness, with­out low­er­ing your man­age­ment fee. There are agents charg­ing stan­dard or above-av­er­age man­age­ment fees in the mar­ket­place, so it is pos­si­ble.

Im­prove your AAMI (Av­er­age An­nual Man­age­ment In­come) as this af­fects the value of a rent roll.

AAMI can only be im­proved by in­creas­ing rents and the man­age­ment fees, and em­brac­ing KPI re­ports to eas­ily show a snap­shot of your busi­ness’s per­for­mance.

Man­ag­ing a rent roll is se­ri­ous busi­ness with in­creased com­pli­ance, ac­tiv­i­ties and pro­cesses that must be ad­hered to. Keep­ing solid doc­u­men­ta­tion is im­por­tant to max­imise the sale price as the buyer is pur­chas­ing your doc­u­ments and data, amongst other pos­si­ble as­sets and leases, and this will give them greater com­fort that any fu­ture sur­prises will be min­imised.

FOR A PO­TEN­TIAL BUYER WHO IS IN A PO­SI­TION TO CHOOSE, IT CAN BE LIKE VIEW­ING A POORLY PRE­SENTED PROP­ERTY OR ONE THAT HAS BEEN WELL-MAIN­TAINED AND CARED FOR.

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