The Affluent Realtor System Initiative (T.A.R.S.I)

Case Study 2

The Importance of Finding A Solicitor Who Understands Rent Roll Business Transactions


The Client was seeking finance through one of the big 4 banks of Australia to purchase a management rights business using the equity in their current rent roll which was purchased 3 years prior.


The agency managed approximately 66 managements. The agency also had a caretaking agreement from which the agency earned a caretaker’s salary.  This agreement was separate to the rent roll the agency managed. 


There was a difference between the Business Valuation undertaken by Opulence Consultancy and the original contract of sale. The client was unable to attain finance for the management rights. 


Employment of Opulence Consultancy

Opulence Consultancy was employed to undertake the rent roll valuation of the client’s business.  


The client provided all the requested information for the rent roll portfolio which they managed, their financial business information. The agency also managed the mowing of a large green area under a caretaker’s agreement.  The caretaker’s agreement was not associated with the rent roll which the business managed.


Review of the contract recorded a total sale price of $515,000 which translated to a multiple of 2.94 times per annualised net income.  The Goodwill of the Rent Roll Valuation was approximately $330,000 which translated to a multiple of 2.75 times per annualised management fee dollar.  The total difference in value was $185,000. 


Opulence Consultancy was able to determine 4 main areas which caused the decline in value of the portfolio being:


  1. Current Market Conditions – at the time of the valuation, there were numerous rent rolls on the open market and therefore, the multipliers had declined. 
  2. Loss of Managements – the agency had terminated poor performing landlords which had not been replaced.
  3. Caretaker Agreement – the reduction in the term of the agreement (18 months remaining over a 10-year term), with no option period. 


The standout performer for loss in value, was:



  • The original Contract 


The original contract was completed under a Management Rights Contract of Sale. No special conditions relating to the rent roll and no rent roll was attached as an annexure to the contract of sale. 


Management Rights require two parts to form the management rights contract being the Caretaker’s Agreement and the Letting Agents Agreement.  In some cases, the residential unit (freehold property) also forms part of the business transaction.


The Letting Agents Agreement provides the Business Owner with the right to manage the lots or rentals in the unit complex on behalf of the investors and the Caretaker’s Agreement provides the Business Owner the right to maintain the property and complex, receiving a remuneration salary to do so. 


Investigation into the rent roll of the client, revealed that the structure of the rent roll did not include a Letting Agents Agreement.  The agency did not manage any properties in the complex where they held the Caretaker’s Agreement and simply, the agency had a Mowing Agreement to maintain the green area near a lake. 


The Management Rights contract recorded the income of the business as $175,000 of which the sale price was based on. This income was inclusive of all income generated by the rent roll i.e. management fees, letting fees, admin fees etc.


Utilising the rent roll statistics at that time and taking into consideration the loss of managements, Opulence Consultancy was able to determine the maintainable property management income which would have been achievable at the time of the business contract being approximately $180,867 per annum inclusive of additional income fees.  


The business contract should have been completed under a Business Contract of Sale with special conditions attached and the rent roll attached as an annexure of the rent roll. The multiple should have been determined over the annualised management fee income only exclusive of additional fees. 


The caretaker’s agreement would have been attached and if any value was being paid for the agreement, this included in the contract, separate to the rent roll. 


Rent Roll transactions are sold on the basis of a multiple per annualised management fee income excluding the additional income streams i.e. letting fees and admin fees etc. 


The client was unaware of how rent rolls transacted and what encompassed a management rights business.  The consultants providing advice lacked understanding of how the rent rolls transacted.  The client overpaid for the subject business.