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With a rent roll portfolio, you can expand and add a reliable fixed income stream to your real estate or property management business. You can apply for a secured business loan to finance the purchase of a rent roll. Residential or commercial property can be used as security, but some lenders may allow you to secure the loan with the rent roll itself.
A rent roll is the snapshot of rents due for a particular rental property. A rent roll portfolio is the overall ledger of all rental properties in a business's portfolio. You can buy or sell this portfolio to other businesses as an investment, thereby acquiring or selling the rights to manage a portfolio of property.
Buying a rent roll portfolio allows you to earn a management fee from the landlords, which you can add as a steady income stream to your business. Acquiring it can help a fledgling agency to grow, or an established business to expand. A rent roll could cover up to 50% or more of your fixed business costs.
Unless you have a substantial amount of capital to work with, you will need a loan to cover the purchase price. You can finance the purchase of a rent roll with a secured business loan. This type of loan will require an asset to secure the loan. Depending on the lender, you may be able to use the rent roll itself as security. Alternatively, you could offer residential or commercial property as security.
How much you can borrow will depend on the lender and 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 60% or even 65% of the purchase price. You may need to put forward a deposit to cover the rest. There are fixed and variable rate finance options available and you could receive a term of up to 10 years. Rent roll finance works the same as a standard business loan. You'll have to make regular repayments inclusive of interest up until the end of the loan term.
In recent years, rent roll finance has become subject to tighter lending criteria. Make sure you prepare a comprehensive business loan application that meets the lender's criteria. You will also need to demonstrate that you have several years of property management experience.
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An unsecured business loan with fast application and funding turnaround. Interest rates determined by business circumstances and loan requirements.
Before your application is approved, the lender will have the rent roll assessed to determine its market value. This is commonly done using a formula known as a Rent Roll Multiplier (RRM). It 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 this is 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. In major cities like Sydney, the multiplier could be as high as 3.5 or even 4.
Pros
Cons
There are a number of things you should avoid when applying for rent roll finance. These include:
When assessing your application, the lender will look into a number of factors, including your ability to repay the loan. The eligibility criteria will vary from lender to lender. In general, a lender may consider your:
If you're looking to maximise your chances of getting approval for rent roll finance, there are a number of things you can do. These include:
🤔 Work out how much you need to borrow and what you can afford.
🔎 Start comparing lenders and loan products. Don't forget to compare interest rates, fees and eligibility criteria. You can use Finder's comparison table to help you.
✅ Select a lender. Click "Go to site" to be directed to the lender's page, or "More info" if you want to read about the lender.
🖨️ Organise and prepare the required documentation. This will make the application process easier.
📱 Apply. Most lenders have their applications online.
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