Every rental property should have an account of their rent rolls.
Every rental property should have an account of their rent rolls. So whether one is maintaining a rental property, or considering investing in one, they should be familiar with the concept. A rent roll is a a list of the tenants occupying a building. It should contain, at least, the number of occupants per unit, the amount of rent being paid for that unit, and when the lease expires. The rent roll should be accompanied by the actual leasing contract in order to verify the rent roll.
The percentage of occupancy at a rental location versus the percentage of vacancy demonstrates whether the property is a stable investment and gives it a more favorable appearance to any potential investors or lenders. Accuracy is key when dealing with rent rolls. There can be an urge to alter the rent paid or the percentage of occupancy but most times there will be underwriting which verifies all the data. This verification process can happen numerous times, not only by the lender’s own employees, but by third parties hired as well. Also, the rent roll is used in calculating the financial statements for a property. The NOI, the cash flow, and the PL for a property use the rent roll to determine each.
Driving up occupancy on a rental property, can increase the rent roll and, therefore, increase the paper statement bottom line. However, the rent roll on a property can show that the property is stable and profitable, but compared to the surrounding area may not be as positive. If the property offers lower rent, but has high occupancy, then the property is not profiting as much as it could be. The property may offer less amenities than the other surrounding properties though, so that is also something that is considered. Also, the type of market the property in can affect how the rent roll is perceived. If the property is a secondary market, the potential for increased rent or occupancy can make a low rent roll become a much less negative strike.
Rent roll documentation is the responsibility to the management of the property, though it should be verified by the owner quarterly. There are several methods in which rent rolls can be documented, including traditional paper records and more modern software. One can even hire a third party to handle organizing and documenting financial statements. This is where finessing can come in handy. While having a steady rent roll may not be an immediate need, there could be instances in the future where the owner wishes to sell a rental property they have, or wish to take out loans against that property. To help the property look more favorable, one can do a little footwork. For instance going door to door and collecting the rent so that it cannot be late, which helps the stability of the property, or offering additional amenities which increases the property’s appeal to the surrounding population.
Remember that rent rolls are a vital part of a property’s financial statements and one needs to be diligent when keeping track of them.