by John Wilhoit, Jr.
When buying a rental property you are in essence buying the rent roll and the monthly income that comes with it. Why is it important to establish the amount of monthly income from the rent roll?
Because this is the contractual re”occurring revenue established from existing, in”force leases. The rent roll is a snapshot of current income as represented by the owner of the asset.
The rent roll is the property owners representation of rental income derived from an income”producing real estate asset.
The rent roll is the most critical document in formulating the value of income property. Authenticating numbers on the rent roll leads to creating a high level of comfort in your property buying decision”making process. When considering the acquisition of income property, without discounting the importance of various ancillary income sources, you must devote the most attention to the largest source of revenue, which is the rental income as reflected on the rent roll.
The lease file review is imperative. A review of each lease file is imperative to validating contractual rental income as reflected on the rent roll. Any number represented on the rent roll must tie to a date and amount as denoted on leases; from rent to late fees to lease term.
The rent roll is a snapshot of rents due for the period as reflected in signed and valid leases. The rent roll is utilized by owners, managers, lenders and government agencies as a springboard to understanding the value and stability of a particular real property asset. The rent roll will state the start and end date of the obligation to pay rent, per the terms of the lease.
Is it true that if is the biggest word in the English language? In rent roll analysis, if rents collected as described by executed leases matched the rent roll, month in and month out, answering the question about collected rental income is answered. Alas, this is seldom the case.
There is no room for the word if in due diligence of rental property acquisitions. There is too much money at stake. If (theres that word again) you are buying rental property, then the money at stake is probably yours. Therefore what you do to acknowledge and address discrepancies between rental income as presented and rental income legally due per the collective leases is vastly important.
John Wilhoit, Jr., is President of Wilhoit Investment Network, LLC, (WIN LLC) in Columbia, Missouri, an owner and asset manager of apartments, condominiums and town homes, and a contributor to Multifamily Insight Blog, providing tips on best practices in multifamily property management. In addition, Mr. Wilhoit is the author of two books: How To Read A Rent Roll: A Guide to Understanding Rental Income and Multifamily Insight Vol 1 ” How to Acquire Wealth Through Buying the Right Multifamily Assets in the Right Markets.
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