3 key questions to ask when you’re buying a rent roll

So you’ve found the perfect addition to your agency. Or maybe it’s the ideal start-up portfolio, ready for all your energy and vision for your very own real estate agency. Buying a rent roll is not like buying a house – there’s no simple ‘building and pest’ – but there is some critical info you need to find out before you’re locked into your purchase. I’ve seen too many buyers swept up in the excitement, forgetting these 3 key questions!

1. Where did the properties come from? It’s great news for you if the principal themselves has been busy doing BDM work and growing the rent roll organically. You’re going to have a legal undertaking from them (a restraint deed) that ensures they won’t compete with you in the future. Any relationships they have with landlords will be yours – that’s what you’re buying, the goodwill.

But what about external referral sources? I sold a rent roll where there’d been a very close working relationship with an active buyers’ agency. It’d been a couple of years earlier, so many of the staff probably didn’t even know about the 4-5 new managements that had come from this external source every month. And guess what this agency had done since then? Not only had they maintained their relationships with these buyers as their trusted investment advisors, but they’d also started a property management division. And once the rent roll sale became public knowledge, many of their clients (landlords in the sale) chose to move across to their service.

Fortunately for the rent roll buyers the majority of these losses happened during the retention period and it didn’t cost them. But it was a hidden risk that would have been easily discovered in a short meeting with the sellers, with well-prepared questions.

2. Who do the landlords know and trust? If there’s a popular property manager, someone who’s been key in serving the landlords over a long time, you’ll be keen to bring them into your team. They’ll have some restrictions in their employment agreement (another thing for your checklist?!) that may protect you if they do choose to go down the road to a competitor, and in my experience it’s that first couple of months after settlement during retention when any damage is done. But knowledge is power in a rent roll purchase and I’d always want to know about any notable PM-client relationships when I bought. 

I know this one seems obvious. But when I sold my own agency in 2023 there was a previous team member my buyers never asked after. He’d had a lot to do with our landlords as head of PM for more than a decade and he’d held key roles in the agency for most of its 18 years in operation. And he’d only left our team less than a year earlier. Luckily for the buyers he’s an honourable guy and no threat to their purchase. But as a rent roll buyer I’d definitely have wanted to know about him and where he was currently working. It was another risk undiscovered through the due diligence process.

3. Are the landlords expecting a high level of service? “Of course!”, you answer. Yes, all clients want good service. But are their expectations realistic? What kind of response times are they currently getting for calls and emails returned, for example? I bought a rent roll many years ago where the PM’s were paid a percentage of their portfolio income, highly incentivised to grow the number of properties through premium service and referrals. So they answered landlord calls at 7.30 and 8pm. They were rapid fire with their email replies. As a rent roll broker I’d be describing that in my ads as a “well run, high service rent roll”!

So where’s the problem with that? My agency always had a great team. I took the view that we wanted the best people and always tried to provide the best workplace I could. But I didn’t remunerate the way that agency had done. Our service was really good – but it disappointed a lot of those incoming landlords! I never expected (or paid) my PM’s to answer calls at 8pm. I’d argue no agency was going to live up to what these clients had experienced, but unfortunately a sizable number left my business to find that out for themselves. It was an expensive mistake on my part and, again, one I could have avoided with more and better questions during my purchase. 

Every rent roll purchase includes a due diligence period when you can take a ‘deep dive’ into the agency and ensure you know all about what you’re buying. There’s some excellent service providers who’ll do much of this for you, checking Form 6’s and ECR’s and smoke alarm compliance and all those details that help you understand many of your risks.

But I’d highly recommended you also get involved yourself. Ask the sellers some of these key questions. Respectfully and with mutual trust – that’s a fundamental part of rent roll transactions. But you deserve to know how the future could look for this asset once it’s yours. You deserve to have your questions answered.

I’d love to have a confidential chat with you about your rent roll plans. Please call me on 0423 332 022.

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