There are no two rent rolls the same, each rent roll has different statistics and income generating capacity. Here are 9 factors that affect the multiplier and value of your rent roll.
Economic conditions influence your business. A buoyant property sales market will not only see the reduction in properties under management with investors taking the opportunity to sell their investment property, there is generally less buyers in the market for rent rolls due to a stronger focus on sales. A downturn in the property sales market generally sees a return of buyer interest to purchase rent rolls to substitute the loss of income being experienced by the sales department. Therefore, demand vs supply drives the increase or decrease in multipliers achieved.
Each State, Territory and each location and area within that state and territory has different lifestyle, socio demographics, infrastructure, primary industry, buyer interest and financier lending support which affect the multiplier achieved for the area.
The annualised management fee is influenced by the average weekly rent and average commission rate. If you have a low average weekly rent and/or low average commission rate, this could reduce the multiplier.
The multiplier is calculated on the annualised management fee income and determined the sale price paid upon completion of the business contract.
4 & 5. Vacancy Rates & Arrears Rates
Agencies are aware of the importance of monitoring and reducing vacancy and arrears. Income achieved by your portfolio is reduced when vacancy and arrears are high. A prospective Buyer would consider the time and resources required to reduce these factors on a poorly managed portfolio or an area where vacancy rates have escalated due to economic conditions.
Multiple properties owned by one landlord increase the risk associated with the loss to income generated on the portfolio. Should you or the landlord terminate the management agreement, a reduction in management fee income plus all the additional income generated by those properties is lost. This may affect the retention period and/or the multiple a buyer is prepared to pay.
The amount of additional income streams being collected by your agency will influence the multiple. From rent roll valuations and rent roll due diligence conducted by Opulence Consultancy and rent roll sales which we have reviewed, we note that additional income fees range between 7% to 25% of total property management income. A higher multiple can be attracted where an agency is charging a high percentage of additional income fees.
A closely held portfolio, one where most of the portfolio is located within 10km radius of your office, can be better managed and reduce the response time for managing the portfolio, therefore, reducing time out of the office by staff, increasing the amount of properties managed by each property manager, and reducing the employment and operation costs to the office.
Would your office pass a due diligence inspection? When the buyer or buyer’s representative conducts the due diligence and finds missing paperwork, incorrectly completed documents or loss of revenue, this can be grounds for the contract to be terminated or re-negotiation of the multiplier.