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Buy or build a rent roll

October 2018

 

There has been a lot of discussion about building your rent roll organically as being better than spending the money in purchasing a portfolio. So what is the right answer? 

Everyone is at a different place in his or her business development, so it is important you address the issue of where you are now, and what you desire to achieve by growing your business in, say 3 to 5 years time. Once you know what you have to work with (as far as a rent roll is concerned) you can then determine if you can achieve your goals by growing organically or, if you can use your rent roll as leverage to purchase another portfolio. 

Lenders traditionally like to see a portfolio of at least 150 properties before considering an acquisition, so there is a reasonable amount of cash flow being produced and it can stand on it own as an income stream. We would encourage principals to maximize their fee income on the properties they have before considering another acquisition. Consider a maximum purchase of double what you already have, so if you have 150 properties unencumbered, then purchasing another 150 properties should be achievable. Make sure you have the office space and staffing to not only cope with the rent roll purchase, but also to take on the extra work of settling it in at settlement. 

Most rent rolls of more than 100 properties will have a property manager going with it, and it makes sense to take that staff member/s so their relationship continuity with landlords can be maintained. Purchasing through a dedicated broker will provide you with the security of knowing the rent roll has been professionally appraised, that documentation provided for the process has been properly drafted, and you will be taken step by step through the process.

Growing your business through rent roll acquisition can be attractive and it does have great benefits, but it needs to be done with professional advice and input to negate the pitfalls, which can result.

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