Blog 2

Understanding the Rent Roll Valuation Process

A rent roll valuation provides the goodwill value of the property management department (rent roll) in today’s current market. 

 

The property management department is the saleable asset of any real estate agency.

 

At Opulence Consultancy our market valuations utilise the Industry Rule of Thumb Methodology together with an Accounting Methodology to ensure that our reports are informative and have detailed analysis of the financial and statistical information of the business to provide a clear and precise indication of the value of the asset.

 

If you are utilising a rent roll valuation for financing purposes, your financier will require either one of the following types of rent roll valuations:

 

  1. Single Rent Roll Valuation – determine the goodwill value just on your rent roll or the rent roll you are purchasing.

 

  1. Amalgamated Rent Roll Valuation – this is the valuation that separates the statistics of each portfolio (yours and the one you are purchasing) however, the goodwill is determined over the total portfolio as though it has been transferred to you.

 

Generally, the bank will require a valuation to be undertaken on an amalgamated basis as they will be lending over the total portfolio and working out their loan to value ratio (LVR) on the total goodwill. 

 

When discussing rent rolls with other business owners, business brokers, financiers and consultants, you will hear the word “Multiplier” being used.  This is the Industry Rule of Thumb Methodology which adopts a multiplier paid based on the annualised management fee income per property i.e. 3 times annualised management fee income per property. 

 

The calculation to determine the annualised management fee income per property for a residential property management portfolio is:

 

Weekly rent x commission rate / 7 days x 365 days. 

 

To determine the multiple (sale price) which you will pay for that property, the calculation is:

 

Weekly rent x commission rate / 7 days x 365 days x multiplier (3 times). 

 

Here are the 9 Factors Affecting the Value of your Rent Roll include:

  1. Current Economic Conditions
  2. Location of Your Office
  3. Annualised Management Fee Proper Property
  4. Vacancy Rates
  5. Arrears Rates
  6. Property to Landlord Ratio
  7. Additional Income Streams
  8. Dispersement of the Portfolio
  9. Due Diligence.

 

Please read our blog “The 9 Factors Affecting the Value of Your Rent Roll”.

 

As part of the valuation service, Opulence Consultancy checks approximately 10% of the rent roll portfolio.  This is not a due diligence on the rent roll, simply a check to confirm that the fees advised in the property management software match the management agreement and tenancy agreement.