Starting a rent roll, how hard could it be? Just because it might not be easy doesn’t mean you shouldn’t start one. A rent roll is typically the rental division of a real estate agency, which deals with collecting rent and managing landlord’s investment properties. In return for these services, a real estate agency collects a commission and other administrative fees from the weekly rent the tenants pay.
Why would you want to start a rent roll you might ask? I asked myself the very same question when posed with the choice of commencing one over a decade ago. I won’t lie it has delivered some very high and very low moments, but once we overcame the initial hurdles like what the hell we were doing, we really haven’t looked back and it has been a huge asset to our business and lives in many ways. Back to why you would want to start a rent roll and the best place to start is by looking at the Australian housing industry.
According to the Australian Bureau of Statistics (ABS) Australia’s housing stock is valued at more than $5 trillion dollars – to put that in perspective that’s 2.5x times the value of our collective superannuation assets which are approaching $2 trillion.
Investors make up the biggest share of new mortgages, and they need a Property Manager to find them a quality tenant, collect the rent, and handle all the day to day issues with the property.
Interest rates are at record low levels and look like staying there for some time – investors across the country are borrowing interest-only money, locking in on fixed rates for 5 years, covering all their costs with rent including paying the property manager, and waiting for capital growth.
Now let’s look at it from a real estate business perspective. There are several reasons you would want to start a rent roll, this includes but is not limited to the following:
Financial security – you have an asset to sell once you are looking to change or retire. Rent rolls are the true value in a business, you get very little for the sale of a sales office, but rent rolls typically sell for between 2.2 to 3.5% of the value depending on market conditions at the time of sale.
Build equity – with a portfolio of managements you have equity in your business, much like if a house price goes up in an area quite significantly and you have a mortgage for a much lesser amount, you can use the equity in the house to borrow more money from the bank or leverage other investments.
In-house sales leads – you have a host of sales leads to sell in-house. This can be very beneficial financially to your business the longer you have your rent roll and the natural cycle of buying and selling kicks into gear.
ORGANIC GROWTH VERSUS BUYING A RENT ROLL
Purchasing, starting, and building a rent roll can be very daunting for the inexperienced starting out in real estate, believe me, I’ve been there and done that. Not only do you have compliance, legislation, systems, and processes to contend with, but then you have property managers, tenants and landlord’s to work with and keep happy and that can take your people skills to a whole new level. Don’t get me wrong it is totally worth it in the long run, but getting set up requires a lot of dedication and time to get things right from the get-go.
I had a chance to chat recently with Tarsi Hynes, Entrepreneur, founder of Opulence Consultancy, and The Tarsi Way (The Affluent Realtor System Initiative). Tarsi has owned rent rolls, valued rent rolls, and is current business involves valuing, conducting due diligence, and facilitating the sale of rent rolls, so it is fair to say rent rolls are her thing.
SHOULD YOU GO ORGANIC WITH YOUR RENT ROLL?
There are two types of what is considered “Organic Rent Roll Growth” in our Industry – this is true organic growth and then there is targeted growth. I believe our industry considers organic growth to be anything that doesn’t include a mortgage.
The main positive of any organic growth is of course that there is no mortgage attached and you own 100% of the equity.
For true organic growth the main negative is that it is very slow because you are not chasing growth it simply just happens naturally i.e. when you are out with a buyer and they are buying an investment so you mention that you do Property Management and they sign a Form 6 with you.
For targeted growth, the main negative is that there is an expense to use methods with hiring a BDM, advertising, etc. The positive for this type of growth is that growth is more rapid than simply organic growth.
OR SHOULD YOU BUY A RENT ROLL?
The positive of purchasing a rent roll:
– Income injection at Settlement into your business.
– New relationships with landlords without having to prospect.
– Larger rent roll to build sales funnel from.
– Generally Cash Flow Positive from day one.
– The negative to purchasing a rent roll is that you will have to repay a mortgage. Others will argue that you are also inheriting someone else’s “mess” however, a thorough rent roll due diligence will assist in inheriting a clean rent roll.
WHY DO YOU NEED A DUE DILIGENCE CONDUCTED ON YOUR RENT ROLL?
Having a thorough rent roll due diligence conducted on your own rent roll and not just when you purchase a rent roll will help you to identify any discrepancies within your portfolio which have been subject to human error. Our industry is time-poor, we are heavily regulated and we have a high turn over with employees. Regularly auditing your own rent roll is good and should be a normal practice. Having a Rent Roll Due Diligence Consultant investigates the rent roll on your behalf every few years is another level that will help you to identify discrepancies not found by your employees (because they are the ones making them). This helps you to focus on running your business, recreating and refining policy and procedures, knowing exactly where you need to place resources to train your employees and minimise risks associated with the management of the portfolio.
WHAT ARE THE MAJOR DUE DILIGENCE ISSUES YOU COME ACROSS?
Employees & Time Management have to be two that come to mind quickly.
We are a time-poor industry and throw a lot of money at technology to make our workday easier (or your employee’s day easier). These two areas go hand in hand and they do need focus and attention from the principal (who is generally time poor too).
There is always going to be trial and error in getting a department running smoothly. I believe if we want to change the concern of “finding good employees or property managers that don’t get burned out”, we need to start creating them in our own offices without the fear of them leaving by constantly reviewing policy and procedures, staff training (including updated legislative information) and technology.
WHAT DO BUSINESS OWNERS NEED TO DO TO MAKE SURE THEY ARE SET UP FOR RENT ROLL GROWTH?
- Plan, plan, plan!
- Undertake a Rent Roll Due Diligence and identify any discrepancies within their own rent roll and fix these up first.
- Ensure the structure of the department is running smoothly
- Create your Business Plan – Employee growth, technology growth, etc.
- Budget
- Time Management
- If you are going to grow your rent roll, you need to have a plan in place for each stage of growth i.e. if I get to 100 managements this is what my business looks like, if I get to 150, etc. You want to be sure that you are hitting the ground running with the right policies and procedures and employee structure and budget for each stage of growth with the best time management and discipline to get you there without burning the candle at both ends.
DON’T PROCRASTINATE, WE CAN HELP!
There are countless online resources to help you with starting your own rent roll, we would also love to help we grown our rent roll to almost 700 managements organically across two locations. So please reach out to us at thatpropertymum.com.au or via social media and we would be happy to have a free consultation or Q&A session and pass on any tips or advice we can.
ABOUT TARSI
Tarsi began her career in the Real Estate Industry in 1999 with a school-based work experience at a business brokerage and valuation firm and in 2007 became a partner in that valuation firm as The Rent Roll Valuer. In 2015, Tarsi also became the partner and principal of a real estate agency in North Queensland.
Find out more about The Tarsi Way, here: https://opulenceconsultancy.com/
Follow Tarsi on Instagram: https://www.instagram.com/t_a_r_s_i/
OUR TOP FIVE WAYS TO START YOUR OWN RENT ROLL
GET A PLAN IN PLACE
This doesn’t have to be a great novel, it can just be a few pages, but you need to identify what your business is going to look like, how you are going to start ie organic or purchase, what your goals are, what is your marketing going to look like.
GET SET UP
Know your legislation and industry compliance first and foremost, then look at your software, there’s a lot of options our there and of course you are going to need a few subscriptions, so here are a few to get you started:
- Property Management Software – Property Me, Console or Property Tree are the most popular
- You’ll need a database or CRM – we currently use My Desktop but Agentbox are another option
- Subscriptions – realestate.com.au and domain.com.au are the two you will need to advertise your properties online, there is also Inspect Real Estate for managing your tenants are leasing process
WHAT ARE YOUR SYSTEMS AND PROCEDURES
What systems and procedures are you going to need? Without them, your business is going to be organised chaos and you will end up with a lot of disgruntled team members and clients. We recommend setting up a list of all the procedures and systems you’ll need to set up and then go from there. Here are a few must-have procedures you will need:
- Signing up a new Landlord
- Leasing a property
- Lease renewals
- Rent Arrears
- Routine Inspections
- Dispute Resolution
- Debt Collection
Top Tip – identify which procedures can utilise software or outsourcing to reduce costs and improve time management
WHAT ARE YOUR FEES GOING TO LOOK LIKE?
Start by doing some market research, do a secret shopper, and see what your local market competitors are charging. You don’t want to go in too high and price yourself out of the market, you also don’t want to go in too low and affect your bottom line, especially if you are starting with an over-servicing mentality or have a mortgage to pay.
Some fees to consider charging:
- Management fee
- Rent collection fee
- Advertising
- Administration
- Lease renewal
- End of Financial Year
- Maintenance
- Court appearance
START GROWING
As mentioned there are a few ways to start growing your rent roll, or you could use a combination of all three; organic, targeted, or purchase. Some other tips to get you started with growing your rent roll include:
- Hire a BDM
- Get social – get working on your content, learn how to use Facebook ads, with over one billion people on Facebook every day, you’d be crazy not to master building your business online
- Offer a reward system – incentivise your existing team, current clients or other businesses
- Get involved in your local community – get involved as much as you can in your local community, becoming a local identity or well known will help attract new business
- Set up a database – make sure you add all potential contacts or business in there, make sure you have a system for following up with people as well, sometimes it takes building more trust with people before they come on board
