Whilst buyers of a rent roll business will encounter similar issues to buying a real estate agency, there are some very specific issues that require particular attention to protect a buyer’s interest and their ability to maximise their returns after settlement.
In particular, the three critical issues that need to be examined: the multiplier, the retention and the restraint of trade.
The Multiplier
The market value of a rent roll in Australia is usually derived by applying a multiplier to the net property management commission. This is usually the most important issue for a buyer and it will be at the forefront of their mind. There are plenty of factors that need to be considered in determining the Multiplier.
- Ratio – a ratio of one property to one owner is considered to be excellent and most buyers will consider this ratio as extremely important.
- Term – what is the management term of every property? Generally, a property that has been managed for more than five years is a “blue chip” management.
- Location – properties located within 5kms of the office are ideal; those located outside are more costly (time and money) to manage.
- Averages – properties that achieve rents way above or below the average for the area usually have higher levels of vacancy, arrears, repairs and maintenance. High levels of vacancy and arrears are typical of low quality rent rolls.
- House v. Units – some managers consider units more profitable than houses, given that repairs and maintenance are comparably lower as the body corporate manages all external issues involving a unit.
- Condition – obviously the condition of the properties will impact upon the time spent in dealing with repairs and maintenance.
- Payment – the method by which tenants pay rent and statements are sent to owners is important (e.g. the monthly tenant direct-debit-rent bank transfer to owner considered most valuable); other less effective systems have a negative effect on the multiplier.
- Authority – agency agreements that provide limited or no authority to the agent result in time consuming and costly communication with owners on trivial matters.
- Relationships – are there any unusual connections between the seller and the landlords? Such relationships could impact on the loss of managements.
Aside from the factors that determine the multiplier, the buyer will need to properly consider the retention issue, which if not satisfactorily addressed, could undermine the value of the rent-roll business. ... Read more at: http://www.business2sell.com.au/blogs/2013/11/buying-a-rent-roll-business--the-3-critical-t.php
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