The goal for investing in rental property is making money in real estate and it has proven to be the best investment strategy for so many people. So if you’re a beginner real estate investor looking to jump into this industry, you need to learn everything you can to make that money. One aspect that is commonly overlooked when we’re talking about real estate basics is the rent roll report. So, what is it? Why do you need it? And how should you analyze a rent roll before buying property?
Related: Pro Forma Real Estate: The Ultimate Beginner’s Guide
What Is a Rent Roll?
In essence, a rent roll is a register of rent for an income producing asset. In other words, it is a list of all the rental units an investor owns. Therefore, if you own a rental property, you need to create a rent roll. And if you are buying a rental property, you need to acquire the previous owner’s rent roll for reasons we will explain later.
So, what’s the data included in a rent register?
First of all, the rent register begins with property identification by address. Further information includes details on each and every rental unit in that investment property as follows:
- Unit description: floor and unit number
- Unit type and size of the area in square footage
- Names of occupants/tenants
- The following dates: move in, lease expiration, move out
- Amount of rent
- The amount of the security deposit
- Any extra income (fees)
- The total amount paid and the date it’s due
The Advantages of a Rental Roll
For you, as a property buyer, especially if you are buying your first rental property, a rent roll report is a rich source of information. First of all, it tells you the history of ownership of that property. Second, it helps you evaluate the rental income the property has been producing throughout the entire period it was used as an income property. Therefore, you will use this information to perform an investment property analysis. The rental yield on that register will help you calculate the cap rate and the cash on cash return. With the help of the rent roll, you will be able to determine if you’ll be making money in real estate with this particular rental property.
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Another advantage is the fact that it reveals hidden issues in the rental history of the real estate property. For example, by looking at it, you can examine the vacancy rate. In this way, you’ll be able to look for the reasons which might cause a high vacancy rate.
Another way a rent roll analysis is advantageous is that it reveals all the opportunities for you to raise the rent at any point in time which will have a direct effect on your rental income, resulting in a higher return on investment. Any rental arrears or unpaid money that is due will be revealed through a rent register which can be useful in helping you plan further action so that you come up with ways to resolve these issues. So, before you close on the deal, ask the property seller to provide you with the rent roll.
4 Tip for Rent Roll Analysis
The rental property owner will be the one to create a rent roll report for you to review. However, you will have to analyze it thoroughly. Here are 4 tips to get you started.
#1. Go through all the leases
This is a real estate investment that is supposed to generate income for you. Therefore, take the time and go through each lease on the rent roll. Sometimes, the property seller rents a few units below-market to take care of vacancies in their investment property. Look for any discounts the previous landlord provided and most definitely check for the leasing standards including tenant screening. Many times, landlords might overlook some aspects of tenant screening which might affect you as the future landlord. So, before making any further moves, make sure you thoroughly analyze every financial aspect in addition to tenants.
#2. Check for any issues with the rental property
As we have mentioned before in the section about the advantages of a rent roll, there might be red flags that you must look out for. Vacancy rates, unpaid fees or rents, and turnover are a few important ones. See how many tenants have not renewed their leases after it expired. This can help you find out why this occurred in the first place. Many times these issues are solvable. But, it is a reason for you to intensify your rental property analysis process.
Related: Lower Turnover Rate, Higher ROI: How Landlords Can Retain Good Tenants
Moreover, check all the fee payments. What are they? How much money do they produce? And are there other ways you can increase them? These factors all have an impact on your rental income and therefore the return on your investment.
Tracking the rent payments will have an effect on your investment property financing. What you don’t want is an investment property that is in deep financial trouble!
#3. Work with experts
At any stage of this transaction, you’ll need professionals to help you navigate through the process. Going through the rent roll report also requires that you work with experts. Such sensitive information requires that you pay special attention to it and it is always best that you be precise and that’s what an expert is for.
#4. Use real estate investment tools
We suggest that you use real estate investment tools, such as Mashvisor’s rental property calculator, since the information you get from the rent roll can help you evaluate the rental property. You can take things like the rental rate along with your mortgage info and plug them into this tool. It will provide you with a complete analysis of the rental property in terms of profitability. The calculator can really assist in determining the potential return on investment which is vital for your investment purposes. It can also save you the time, effort, and any potential losses along the way. To start your 14-day free trial with Mashvisor and subscribe to our services with a 20% discount after, click here.
Related: 8 Must-Have Real Estate Investment Tools