It was one agency, two rent rolls. We had split the sale of this south east Queensland business, as the properties were spread over a large geographic patch. We had two different buyers taking two different approaches to their due diligence, but the rent roll had a common history with the same property managers. So you’d expect the same issues from both buyers’ pre-settlement checks, right?!
“Due diligence” is a common condition in business sales and a critical step for a rent roll buyer. While interested (and qualified) buyers receive an Information Memorandum and property schedule from me before signing contracts, due diligence is the time to really take a thorough look under the bonnet of the business. This is a ‘building and pest’ on steroids, a chance to check each management, each file, ensure compliance boxes are checked, and you know what you’re really buying.
And yes, like a half decent B&P, anyone doing DD is going to find a couple of cracked tiles and a slightly loose handrail. I’ve never seen a rent roll with a 100% score.
The challenge for you as a rent roll buyer: Have I checked the important things?
So back to my recent split roll sale, where one of the buyers, doing their own file review, discovered a large number of Form 6’s were missing critical references to commissions. These needed to be redone to be sure they were valid.
The other buyer outsourced a report from a professional due diligence service which mentioned, among lots and lots of items of concern, a lack of landlord ID’s held on file (which they claimed is needed for compliance with current legislation) and the absence of gas compliance certificates. But no mention of the Form 6 commission issue…
I know which I would have rated most important when I was buying buy rent rolls for my agency!
Don’t get me wrong, there’s a number of experienced PM’s and former agency owners offering due diligence services in Queensland, and they are very thorough. They will check there’s GTA’s and pool compliance and ECR’s and copies of body corp by-laws and see if all the bonds have been topped up. They’ll do every little check you’d like done. Money well spent for that work – there’s not enough caffeine in the world for me to wade through all of those things myself 245 times over…
But I’d argue the Form 6 is what you pay for when you buy a rent roll and that’s the key document you should make their focus. Is it complete and compliant, correctly signed by the correct property owner/s and does it match the details in the software? Are the other documents important? Of course. And, like the B&P report, if there’s enough cracked tiles you might need to wonder if the house just isn’t real stable. But, for me at least, they were rarely a deal-stopper.
I can’t remember ever losing a management because a previous PM hadn’t given us an entry condition report. Yes it could make a vacate painful and QCAT unwinnable. So of course I’d prefer to have them. But my eye was always on what I needed to retain these bought landlords well into the future.
My team used to throw the previous agency under the bus regularly! “Aren’t you lucky we’re managing your property now?!”
Maybe a couple of defects in the report aren’t such a bad thing?!
PS: I’ve written another post about some key things I ALWAYS looked for when I did due diligence – have a read here.
If you’re considering selling I’d love to have a confidential chat about your rent roll or agency. Please call me on 0423 332 022.