HOW TO BUY A RENT ROLL AND THE IMPORTANT STEPS TO TAKE

Put your hand up if Property Management growth is top of your goal list this week, month or year! I bet that was most of you reading this right now. There’s a really quick way to get those new management’s across the line. It’s by buying a rent roll. Of course, that does come at a cost, but the long term reward may very well exceed the short term expense. Buying a rent roll could be just the answer to all your growth problems. Now for anyone new to the industry, especially those not from Australia, a rent roll is the number of properties your business has under management or is managing. It is considered a valuable asset in a real estate business because you can sell it off to another business for profit.

 

Now, I personally have never purchased a rent roll. I’ve sold off pockets of my own rent roll, though. But all of my growth has been targeted and organic. And that suited me at the time because I had absolutely no idea what I was doing. Starting and growing a rent roll was never something that I intentionally set out to do. It was a by-product of our successful sales business. We grew really quickly. We had 400 managements in four years. Boy, was that a rude awakening. At the time I was the property manager, the sales administrator, the marketing manager, the receptionist, and the leasing consultant. In fact, there isn’t a seat that I haven’t sat in a real estate business. That was how the initial growth happened for me. But there is another way to go about starting and growing your property management business. And that is by buying a rent roll.

 

I sat down and interviewed one of the industry’s leading business valuation, rent roll due diligence, and business consulting experts, Tarsi Hynes. Now I have personally worked with Tarzi over the years, she has valued my rent roll conducted due diligence, and just helped sell off pockets as well. Now her mission is to help real estate professionals understand the value of their businesses and run it efficiently and affluently as well. If you’ve been thinking about buying a rent roll, then stay tuned.

 

HOW DID YOU GET STARTED IN THE INDUSTRY?

‘First of all, I started in the industry with work experience back in 1999. And I started in a business brokerage evaluation firm and eventually went on to become a business valuer specialising in the real estate industry. That was because I wanted to become a business broker. So when I got my real estate licence to do that, and just fell in love with real estate pretty much and I went on to own my own agency, I own my own valuation company. I mean, I own my own business now and I continue to specialise in the one space that I absolutely love real estate.’

 

WHY BUY A RENT ROLL?

‘They’d be looking to grow their portfolio substantially very quickly and obviously get a really big cash injection into their business. So, when you buy a rent roll, it gives you automatically reoccurring income straightaway. Whereas when you’re growing it organically, you’re having to go out, find that find the business, bring it in, and it’s like one management at a time that comes through the door. This time, you can get like a nice big chunk, whether it’s, you know, 30, 150, 500,000, it’s one big lump sum that comes into your business.’

 

RED FLAGS WHEN BUYING A RENT ROLL

‘When they’re buying a rent roll they’re going to be looking at the statistics of the portfolio. But when you’re looking at the statistics, you’re only looking at the top kind of layer. Once you’ve actually done a due diligence, that’s when you really get underneath the bonnet, and you get to see what’s going on, it’s not only about how they’re actually managing the portfolio through paperwork, it’s also how the staff are performing within that portfolio as well. So, you know, there’s, there are lots of little red flags, barns are a massive one. And that has to be done correctly, and Bond audit has to be done correctly to be able to actually see everything that’s under the hood in that there really, is there. The vacancies? Have they correctly completed property management? Reporting? Are they doing their routine inspections, a lot of times that can get missed, whether it hasn’t been closed off in this in the system, and then it doesn’t trigger the next one. And so there are little things like that, that go on through the portfolio. And that’s part of our legislative right, that we need to be maintaining that portfolio so that it’s about minimising risk, right? When you’re buying a rent roll. It’s about how you’re going to minimise the risk of that person that’s been managing it, bringing it on into your business. So when you’re looking underneath the hood, you’re literally looking for everything that is to do with minimising the risk of purchasing that portfolio. Have they been correctly charging the fees? You know, are you going to end up having to pay back fees because they were incorrectly charging? Have they been managing it correctly? Are they join their routine inspections? Have they correctly? When they are looking at tenants? Have they done the application correctly? There’s so much involved with it. What’s the what’s the property look like? Have they got gas certificates have they got water efficiency certificates? You know, there’s so much involved in our industry that weighed like we are so heavily legislated that if we’re not maintaining it properly, there are so many grounds for us for someone to come back and bite us in the arts. We don’t want it to come back and bite us I do not want to see my clients giving back money for something that could have been avoided.’

 

STEPS TO TAKE WHEN BUYING A RENT ROLL

‘The first thing they need to do is actually look at their own portfolio. That is key number one, I mean, everyone just goes I’ve got my financials there already, I’m going to go and see the bank. That is definitely part of the steps that you need to do, you need to be looking at your financials, you need to go through your profit and loss statements and make sure you know that you’ve redefined all your expenses, and you need to make sure that you’ve got your business plan in order, you need to make sure that you’ve gone and sat and sought finance. But as part of that, you actually need to know the value of your own rent roll. You know, have you gone and done the due diligence in your own rent roll? Have you gotten an evaluation? Have you gotten under the hood and actually hired the professional to come in and go through all your portfolio and give that to you have you trained to staff correctly, because through a due diligence, you’re actually going to see where the errors are occurring in your actual portfolio, which means you can actually turn around to your property management staff and go, oh, I need to train you in this area, because we’re hiring people and trusting that they can do the job. But how do you actually know it’s been done correctly, you’re not going to know until you’ve done that. So you need to turn in and actually look at your own portfolio. First, make sure that your foundation is completely solid, and find out the actual value of your rent roll because there could be areas that you’re missing out on income and so forth. You know, like when you do a due diligence, you could find that you weren’t charging correctly, your management fees, you could be less you could be more like it redefines everything to get the structure right in the foundation, right?’

 

‘And then once you’ve got all that you know the value of your rent roll, go to the bank, have those conversations, you know, have all your financials ready, get that all in order and then you can start looking for a rent roll because at that When you’re going to know your breakeven, you’re going to know exactly what you can borrow you know exactly what your income and expenses are, you know exactly how big of a portfolio you can actually look for. And it may turn around and go, I’m actually not ready right now to be buying a rent roll. What I might need to do is grow X amount, organically, and then I can go on viral or Yes, I’m 100% ready to go environment right now, this is what I’m looking for. And then when you come like when we’re speaking, we can design all of that together, and then create the path of how you’re going to grow your portfolio. But you’ve also got to have it in targeting, like as in a goal in mind, you know, are you trying to grow your agency to 1000 rentals? Are you trying to grow your agency to 150 rentals, like, it’s all going to be determined by how we’re going to be buying the portfolios. So you need to turn number one, step one, is, turn back into your own portfolio, get that running, right, step two, go and get your finance and everything sorted. And then step three, we start hunting for a rent roll.’

 

WORKING WITH A RENT ROLL BROKER

‘That’s up to the business owner, there’s no right or wrong way to enjoy it, you need to be searching all of the brokers at any given time, because you’re obviously looking for something in your own area, something that’s going to meet your capabilities and your structure. So, you’re going to definitely go first and foremost, to the brokers now you’ve got your industry brokers, and you know, you’ve got four or five major ones that cater for selling just the Queensland market, which we’ll just talk Queensland for right now. So you’d go into that market space, and you’d constantly keep an eye on what’s going on. And you’d be in touch with all the brokers with regards to Hey, this is what I’m looking for, this is what I’m doing. If that’s not turning up something, speak to the guys around you, you know, approach those business owners, Hey, are you looking to sell your rent roll, are you looking to buy or are you interested in selling. Now, sometimes that can be very confronting to another business owner because we are in a very competitive space, I don’t see competition as a bad thing, I see it as a very healthy thing, so long as you’ve got relationships with the people around you. But sometimes, and as we know, in real estate, some people may not have a very good relationship with other business owners in their area. So it might be a little bit more difficult to approach those business people. The third one is I actually offer a buyer agency service, so as in like a buyer’s agent, and then I can work on behalf of the real estate business owner, and go out there and hunt for a portfolio on their behalf. It’s really dependent on them. But again, it’s dependent on what’s on the market at any given time.’

 

BUYING A RENT ROLL VERSUS ORGANIC GROWTH

‘The benefits are that you are going to get a large number of properties into your portfolio at one time, which means that you’re going to get a nice big cash injection. Rent rolls are normally positively geared. So the minute you buy a rent roll, instead of growing it organically, which is only one management at a time, you’re going to get a nice large chunk that comes into your portfolio. It may also come with a property manager. So you’re instantly you know, bringing across a property manager with it, you’re not going to have to look for staff. So there are a few key benefits and it gives you efficiencies in your business. So, you know, once you get to a certain level, you’re gonna get more efficiencies in your expenses in your staffing and in the structure and your business structure. So there are many key benefits for buying a rent roll versus organic growth and it’s a lot faster, it’s just, it’s instant. The only thing is you’re going to have a mortgage against it. That’s the only downside of buying a rent roll. However, you should be able that should be all your fingers. You should be able to maintain that nice and easy like I said these are normally positively geared.’

 

PERSONAL DEVELOPMENT

‘This is my favourite book. It’s called The One Thing by Gary Keller it’s a fantastic book. I’m the type of person do a million things at any given time like my brain can go on a complete tangent out this way and a complete tangent down this way. And I have to try and bring it together. And this book really helped me in just creating, you know, if you do one thing consistently at any given time, you will get through everything. And it’s just, you know, I was kind of like in that space, where, what do I do, I want to do this for my business. And I want this for my personal life. And I want this for my children. And it just kind of helped me bring it all back in and create the life it helped create the life that I desire.’

 

WHAT IS THE TARSI WAY?

‘The Tarsi way is basically all of my products have been created through my knowledge base I’ve completed, you know, rent roll valuations for many, many years I’ve been in and behind 1000s of real estate agencies, I’ve owned my own real estate agency. And every day I get to be in businesses behind the scenes. So all of my products have been created in a way that I want to help business owners be affluent and efficient in their businesses. So it actually stands for ‘The Affluent Realtor System Initiative. I try and make sure that all my business owners through valuation due diligence consultancy, get as much value and as much knowledge as possible. So, I really believe that unless you know everything going on in your business, you know, nothing. It’s really important for me to be able to help wherever I possibly can. And, you know, my clients use me however they desire, I’m literally at their beck and call. If they can’t find money in the trust account, I’m there looking in the trust account, if they need a process to be done on there during the process if they need forms to be created. I’m just jumping in like, I literally do. I do everything I consult with the RTA if we need to get that all setup, and if we’re missing bonds, I get to find them. It’s just I love what I do because I get to help businesses every single day become more efficient and more affluent and it’s just such an honour to be able to do that.’

If you are someone who is serious about growing your property management business, and you’d like to learn the systems that I’ve put in place inside my own business that consistently brings in new management leads every single week without me having to do anything. Go to the show notes and click here to find out more about The Growth School.