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REIQ Journal : February 2010
or medium-sized rent roll, many of them because they are having trouble covering their xed costs and there is little margin for error. When purchasing an additional rent roll, say of around 120 properties, the xed costs (such as desk cost, rent, trust account and procedural systems) don't change much. The increased variable costs are also minimal and may include an extra property manager and perhaps another administration person. Because the increase in both types of cost is minimal this means that the additional income generated from buying a small rent roll ows straight through to the bottom line. Gary says that it is important to take care to ensure the rent roll you are buying is not only worth the purchase price but also that it will not contaminate your existing rent roll. For example, it's a recipe for disaster if more than 80 per cent of sta time is spent on just 20 per cent of properties. A detailed report, known as due diligence, will uncover the facts about any tenancy breaches and rental arrears, as well as the history of repairs and maintenance. Due diligence will produce a report detailing average management fees, letting fees, monthly revenue, yearly revenue and average yearly revenue per property. When you buy a rent roll you will need to make sure that it is complete with all the information you need. This includes what unit types there are and how much revenue is generated on a monthly basis. You will be told the tenant names or a notation that the property is currently vacant, the actual rents, the account balance showing any rent owed or prepaid and the date of the last rent increase. You will also need pro t and loss statements for at least the past two years and the year-to-date gures for the current operations. Gary says that after settlement you will also need to check the following details: The current lease status; All entry condition reports; All bond lodgements; Recent routine inspection reports; Outstanding maintenance reports; Rent paid to the due dates; Familiarisation with diary notes and all documentation; Identify all work in progress. This is because, subject to the retention contract terms, this period is the only opportunity to terminate a transferred management with major property or landlords issues. As each property management costs money, it is bene cial to engage additional sta , if required, to work through this process promptly rather than after the retention period expires. If done after the retention period expires, it will cost the agency the value of that management paid at settlement, which may be equal to three or four times the annual commission. As far as nancing the acquisition of a rent roll, only a few lenders now specialise in this area. Most will only advance funds to a loan to value ratio of about 60 to 65 per cent of the total acquisition. The right acquisition could substantially add value to your current real estate operation. Also, dealing with the right nance broker can streamline the process to secure the funds available to assist the purchase. Jess Wheeler is a marketing consultant who specialises in delivering creative marketing solutions to a diverse range of industries, including ecommerce, nance, real estate and automotive. Jess was recently the marketing communications manager of a well-known Australian real estate franchise, and is currently the managing director of Outsauce. www.outsaucemarketing.com.au Reprinted from Leased Magazine. Copyright 2010. When you buy a rent roll you will need to make sure that it is complete with all the information you need. REIQ Journal February 2010 45 PROPERTY MANAGEMENT
December January 2010