A rent roll report is an in-depth report that landlords, owners, and property managers use to interpret the revenue of one or more properties they own. Tenants and Franchisees use a rent roll to understand their obligations under their leases. For those new to property management, it may be a bit difficult to fully understand what a rent roll is and how it functions. Today, we will review the importance of a rent roll.
What is a Rent Roll?
Rent rolls are used by property owners and managers to track, analyze, and plan for rental income. It can be constructed for any type of income-producing real estate, such as single-family homes, multifamily buildings, office buildings, shopping centers, and land leased for agricultural use. Essentially, a rent roll shows the rental income from a real estate asset. This information can be used to calculate data such as net operating income (NOI), internal rate of return (IRR), gross rent multiplier (GRM), and cap rate to see the profit and viability of properties.
How a Rent Roll Works
A rent roll breaks down the rent per unit and/or suite. It also gives a total rent amount for the entire investment property. It collects rent data from each individual tenant’s lease agreement and puts it into one easy-to-read document. There are property-specific rent rolls as well as rent rolls for an entire property portfolio. These allow you to view not only one particular property, but everything you manage.
In the world of real estate, time is money, and rent rolls help to save both. The landlord doesn’t have to waste time digging up each tenant’s lease to determine rent amounts or lease start and end dates. With all the data in a single, intuitive report, they are able to see profitability at a glance.
Example of a Rent Roll
A rent roll for a single-family rental property can easily be created using spreadsheet software like Microsoft Excel or Google Sheets. For multi-family and commercial properties, things can become a bit more complicated. That’s where property management software like RAAMP comes in. RAAMP takes the hassle out of finding all of the data yourself and instead provides it in one easy-to-access place.
Where Does This Data Come From?
The data for a rent roll comes from a few sources: county tax assessors, MLS listing information, appraisal reports, lease agreements, and tenant files. The data on a rent roll can vary by property type, but most will include the following:
- Monthly and annual rental income summaries, which include any extra amounts paid monthly.
- Lease details, such as the lease term, monthly rent, security deposit, and additional fees.
- Tenant information, including their name and contact details.
- Information on each unit, such as the unit number, square footage, the number of bedrooms and baths if it is a multifamily property, and any other features or notes.
- Property information, such as the owner or management company, address, and property type.
Who Uses a Rent Roll?
The rent roll is an all-purpose document that can be used by buyers and sellers, property managers, real estate investors and landlords, and lenders. It can provide a surprising amount of detail on a single page, such as the information listed in the previous section. Rent rolls can be used to increase profitability by increasing rents, renovating, tenant screening, etc.
Buyers & sellers practicing due diligence
- Rent rolls are used to see the property’s income potential and if the property has been generating stable income.
- Rent rolls can be used to determine if a property is a good investment.
- A quick look at the rent roll will tell a buyer and seller whether the property has been generating stable gross rental income.
- If a tenant’s lease is coming up for renewal in the next few months, a seller who proactively extends the lease may be able to sell the property at a higher price since the tenant has been “stabilized” for another 12 months.
Mortgage brokers & lenders evaluating a property or portfolio
- Lenders can review the rent roll to anticipate the future income-generating potential of the property.
- The rent roll is used to evaluate the potential risk of making a loan, a cash-out refinance, or opening a home equity line of credit (HELOC).
Real estate investors analyzing potential deals
- The rent roll can help an investor learn if there could be a problem with cash flow in the future.
- Comparing the fair market rent to the rent the tenant is currently paying indicates the possibility of increasing the value of the property simply by raising the rent.
- By comparing the rent roll to the income line on the profit and loss statement, an investor can immediately see if the gross income is being accurately reflected on the P&L.
- Real estate investors can use a rent roll to verify the current rental income, search for upside potential in the rental property, and to anticipate problems with future cash flow.
- A rent roll can be used to pre-market a property for lease in order to reduce the amount of down time due to vacancy and repairs.
Property managers and landlords
- The rent roll document provides landlords with a quick snapshot of their tenant base and income.
- Information gleaned from a rent roll includes tenant turnover, rent growth, and occupancy rate which can help calculate future profits.
- If a tenant begins to pay the rent late, or if a tenant is a habitually slow payer, then it could be a big red flag that the tenant may need to be evicted.
- After receiving a comparative market analysis (CMA), the rent roll will show whether the rent a tenant is paying is a fair market rent or has room for an increase.
Rent Rolls are a Path to Profitability
Rent rolls are a useful, efficient tool across real estate professions. They streamline information, help you see data at a glance, assist in calculations, and more. While rent rolls may seem confusing at first, they are intuitive spreadsheets that are easy to understand and assist in making a profit. Time is money, and a rent roll can help you gain an edge on both.