The document discusses factors to consider when purchasing a rent roll from another property management company, including conducting due diligence on the rent roll's performance, properties, landlords, and staff. It provides tips for appraising the rent roll's value, obtaining financing, drafting protective contracts, and smoothly transitioning management responsibilities post-purchase.

1. Tony Morrison

2.  Buying vs Natural growth
 Due Diligence
 Choosing your buyer
 Method of appraising rent rolls
 Understanding multipliers
 Finance
 Contracts (clauses to protect purchase)
 Post purchase transition
 Rent roll calculator

3.  Before embarking on purchasing a rent roll it
is worth comparing the merits of natural rent
roll growth versus buying a rent roll as both
methods of growth have positives and
negatives.

4.  You can control  Slower growth
quality,  Rent roll loses money
 location & for a period of time
 fees of properties until numbers grow
 You can avoid bad
landlords
 No inheritance of
problems
Positives Negatives

5.  Increased size gives  Landlord rejection
business momentum  Buying existing issues
 Increases cash flow  More often than not
 Irons out fluctuations
of sales department poorly run
 Eliminates a  Integration issues
competitor from your
local area
 Increases networks and
database
 More opportunities for
the sales department
Positives Negatives

6.  What are the average
rents and
management/letting
fees?
 How recently were any
of the above increased?

7.  What Ancillary Fees
does the seller charge?
– postage, re letting
fees, inspection fees,
exit fees
 Is there room to add or
increase these fees?

8.  Are all agency
authorities/files up to
scratch?
 If not, what potential
risk does this pose?

9.  What is the location
and type of properties
being managed?
 How does the
Geographical spread,
furnished/unfurnished,
houses/units affect the
return on the rent roll?

10.  How many properties
are owned by the
vendor or affiliated
with the vendor?
 How could this
potentially impact you?

11.  What is the ratio of
Landlords to
properties?
 Are there a lot of
multiple property
clients?
 What impact does this
have on the value of
the rent roll?

12.  What is the current
staffing structure?
 How many?
 Are they any good?
 Will they stay on?
 What do they cost?

13.  Will the Vendor/key
staff remain for a
period of time after
settlement?
 If they don’t, what
problems could this
cause?

14.  What property
management software
is being used?
 How easy will it be to
integrate?

15.  Are Landlords currently
being provided with
services that you can’t
or won’t provide?
 What is your strategy
for handling this?

16.  Are landlords fees
currently less than
what you charge?
 What is your strategy
for increasing fees
whilst not losing
properties?

17.  What Rent Payment
methods are used?
 Do you use a different
method which will
cause issues to
introduce?

18.  What percentage of
properties are in rent
arrears and how long
have they been in
arrears?
 How does this affect
the value?

19.  What are the number
and length of
vacancies?
 What problems are
you taking on?

20.  Are there any
properties on the rent
roll for sale?
 Are you likely to lose
these in the near
future?
 Are they likely to be
sold to investors?

21.  How long has the
vendor been
managing the rent
roll?
 What impact can this
have to you?

22.  Has the vendor
purchased any rent
rolls previously?
 Does this pose any
threat to you as
Landlords do not
traditionally like
change?

23.  What has the been the
net growth/loss in the
rent roll over the last
few years?
 What does this mean to
you?

24.  Has the trust account
always been balanced?
 How do you protect
yourself against a trust
account that hasn’t
always balanced?

25.  Are rental bonds held
for each property?
 What problem does
this pose if not?

26.  Have regular
inspections been
carried out on each
property?
 Was there an ingoing
inspection carried out
for the current tenant?
 If not, what problems
can this cause down
the track?

27.  How many outstanding
maintenance issues are
there?
 Are you taking on
major maintenance
problems?

28.  Are there tribunal
hearing or insurance
claims pending?
 How time consuming
& costly will these be?

29.  It is important to get answers to the previous
questions so
 A) You know what you are getting into and
 B) To ascertain a fair market value for the rent
roll

30.  It is strongly advised that you or a senior
Property manager inspects the premises of
the person selling the rent roll to validate all
the answers to the questions that you have
been seeking.

31.  Don’t just sell to the person who offers the
most money
 You should only sell to someone who is at
least capable of looking after your clients to
the end of the contract retention period or
you will lose more than you gained by taking
a higher offer initially
 Avoid selling to someone with a bad
reputation or who is known to offer poor
service

32.  The value of a rent roll is usually based on a
formula which is a multiplier of the yearly
management fee that each property brings
into the business annually.
 Generally letting fees and ancillary fees don’t
come into the value of the rent roll as they
are unpredictable.
 Occasionally a smaller multiplier can be used
for the letting fee

33. e.g. Property rents for $300 per week with a 9%
management fee
$300 per week x 52 weeks in a year =$15,600
( income to owner per year)
$15,600 x 9% = $1404 (yearly income to Real
estate office from property)
$1404 (yearly income) x multiple of 2=$2808
(value of property as an asset to business)
$1404 (yearly income) x multiple of 3 =$4212

34.  In Tasmania the multiple generally varies
between 2 and 3 but in some metropolitan
areas in Sydney it can be as high as 3.5 to 4
 There are many things that can affect the
multiplier as previously discussed under due
diligence
 Supply and demand also has a considerable
bearing on the multiple

35.  Multiplier
A. x 3 = great management, long fixed term
leases, no arrears, inspections reports
thorough and detailed, maintenance
excellent
B. x 2.5 = standard management, generally in
good condition but some maintenance and
arrears issues
C. x 2 = properties in poor locations, low rent
values, vacancy, arrears and maintenance
issues

36.  Banks will generally lend up to approximately
60% of the value of the rent roll without
separate equity as security
 Banks will take into consideration the quality
and location of the rent roll
 Your ability to service the loan is also taken
into account.

37.  Contracts need to cover the following issues
 A Post sale restraint period must be included to
stop the vendor opening up in opposition and
winning back the properties you have paid for.
 A Retention of payment to the seller to cover loss
of properties from the rent roll. Usually 10/20%
of the sale price for a period of 3 to 6 months.
 A clause covering non payment to the seller for
clients who refuse to be transferred over to you
 Detail of all the documentation to be handed over
on settlement

38.  Indemnity for future claims on the rental
department for existing rent roll problems
prior to settlement.
 Warranties from the vendor
 How are rental properties which the seller
owns privately, which are being sold with the
rent roll to be dealt with?
 This is of particularly concern if the seller
wants to dispose of them somewhere in the
near future.

39.  What happens if information you relied upon
to estimate value of rent roll turns out to be
incorrect?
 GST should not be applicable as the rent roll
should be sold as an on going concern
 What actually gets handed over, e.g. (keys,
security devices, landlord details, file history
notes, maintenance reports, signed
authorities, condition reports, all Landlord
and tenant correspondence, tenancy payment
ledger and all original leases)

40.  Do you nominate an acceptable figure that
vacancies and arrears must not be above on
settlement day
 Agreement over access to information prior
to settlement
 A notification process to landlords and
tenants
 Continuation of business in efficient and
diligent manner
 If possible, permission to start transitioning
management authorities before settlement

41.  Extremely critical stage
 Contact with landlord, both personal and
written must happen immediately
 Understand that Landlords don’t like change
 They didn’t choose you initially
 First impression critical to build trust and
loyalty
 Sell the benefits of what your firm can offer
 Have the previous owner involved in
transition whenever possible

42.  Preferably plan a joint communication plan
for landlords and tenants
 Essential to get Landlords signed up on your
authorities a.s.a.p. (preferably prior to
settlement)
 May need to deal with issues over a difference
in fees between you and previous agent
 Some Landlords use this as an opportunity to
exit from management as they weren’t happy
and were looking for an excuse to leave

43.  Set out how you normally communicate as it
might be different from previous agent
 Find out Landlord expectations
 Discuss changes with staff as soon as
contract unconditional
 Consider hiring some of the seller’s staff to
make sure management agreements stick
 Give reassurance to everyone

44.  For a copy of a rent roll calculator contact
Tony Morrison at
tony.morrison@harcourts.com.au
or on 0418 130 563