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If you own a real estate agency or property management business, buying a rent roll portfolio is a great way to expand your business and add a reliable fixed income stream. Unfortunately, finding the financing you need to buy a rent roll can be a difficult proposition.
With tighter lending criteria limiting your loan options, it's important to plan ahead and prepare a comprehensive application to increase your chances of rent roll finance approval.
Rent roll is the snapshot of the rents due for a particular rental property. A rent roll portfolio is the overall ledger of all rental properties in a business's portfolio that can be bought or sold to other businesses as an investment.
Rent roll finance is a type of commercial property lending that you can use to help purchase an existing rent roll if you don't have the capital to do so.
A rent roll is an important money-making tool for any real estate business. By acquiring a rent roll from another agency, you can provide a significant fixed income stream for your own business. This is a great way to help fledgling agencies grow or allow established real estate businesses to expand, as a rent roll can help cover up to 50% or even more of your fixed business costs.
However, unless you have a substantial amount of capital to work with, you'll need to borrow money to help cover the purchase price of a rent roll portfolio. This is where rent roll finance comes in.
Rent roll finance allows you to borrow up to 60 or even 65% of the purchase price. There are fixed- and variable-rate finance options available, and the money you borrow can typically be repaid over a term of up to 10 years.
Unfortunately, rent roll finance has become subject to tighter lending criteria in recent years. Not only is it important to shop around and compare your finance options, but you'll also need to make sure you prepare a comprehensive business loan application that meets all the lender's criteria.
While lending requirements vary, you will generally need to meet the following criteria in order to qualify for rent roll finance:
There's also plenty you can do to maximise your chances of rent roll finance approval, including:
100% confidential application
Borrow up to $100,000,000 with terms from 1 to 30 years to fund businesses of all sizes.
You'll need to consider the following features when comparing your rent roll finance options:
There are a few key risks you should be aware of before you apply for rent roll finance:
Before approving any application for rent roll finance, the lender will need to have the rent roll assessed to determine its market value. This is commonly done using a formula known as a Rent Roll Multiplier, which works by applying a multiplier to the annual management income associated with the rent roll. The annual management income is the total amount earned from management fees and rent collection charges (excluding GST).
Once the overall annual management income for a rent roll has been calculated, a multiplier is applied to calculate a fair purchase price. This multiplier is affected by a number of factors, including:
Based on the above factors, a multiplier of between 2 and 3 is usually applied. However, in major cities like Sydney, the multiplier could be as high as 3.5 or even 4.
This varies between lenders and depends on your business's financial position. Some lenders have a maximum loan-to-value ratio (LVR) of 40%, while others will let you borrow up to 65% of the rent roll purchase price.
This may be a worthwhile option for some businesses. Refinancing any existing loans against your current rent roll could help you reduce your debt and therefore increase your borrowing power to help you buy a new rent roll.
You may wish to engage the services of a commercial finance broker that specialises in real estate lending and rent roll finance.
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