Why is a Rent Roll Important for Landlords?
A rent roll is a key report for landlords because it provides information on every rental in your portfolio.
The rent roll acts as a snapshot of expected rental income and key elements of the leases for each unit you manage.
You can imagine how invaluable this reference document can be if you want to display the profitability of your business or glean insight into your operation.
A well-constructed rent roll is easy to update and simple to understand.
In this article, we’re going to talk a bit more about what a rent roll is and why they’re so important for your business.
What is a Rent Roll?
A rent roll is a spreadsheet that highlights the rental income for a specific property or portfolio of properties. It’s a key report for real estate investors, property managers, and lenders because it makes it easy to analyze business performance.
Traditionally, a rent roll will list every rental unit you manage, the rent charged for each unit, the lease term, and the lease start and end dates. The rent roll may also include other the security deposit, late fees, and other fees specific to each unit.
A rent roll makes it simple to calculate the total income generated by a property and discern any potential issues with the current rental agreements. For instance, if a rent roll shows multiple vacant units or units with leases that are about to expire, you can use this information to make informed decisions about things like rent increases and tenant screening practices (to reduce tenant turnover).
Lenders also use rent rolls to understand a property’s financial health before making a lending decision. Lenders want to make sure your business will be able to pay back a loan, and a rent roll can help them make this determination.
Why is a Rent Roll Important?
Now we know what a rent roll is, but what makes it such an important document? Let’s look at four main reasons below:
Tenant Management
A rent roll provides crucial information about the tenants occupying your units, including lease terms and rent collection data.
A rent roll helps you manage leases because it shows expiration dates and tenants that need renewals. This helps you develop leasing strategies and ensure leases are current.
In terms of rent collection, a rent roll allows you to keep an eye on rent collection and find tenants who may be behind or in need of reminders. This information helps you keep consistent cash flow and manage tenants who fall behind on payments.
Financial Planning and Forecasting
Most rent rolls include the monthly rent for each unit, late fees or other charges specific to each unit, and the total rental income for the property. It may also list expenses such as property taxes, insurance, utilities, maintenance, and repairs.
By analyzing this information, you can calculate the net operating income (NOI) for each property (income generated by the property minus the operating expenses). The NOI is crucial to figure out the profitability of your property and make decisions about rent increases, renovations, and other strategies to enhance rental income.
Furthermore, a rent roll can also help you track vacancy rates over time. By monitoring this information, you can see if any units are consistently vacant and take steps to improve marketing or lower rent prices.
You can also use a rent roll to analyze every unit’s financial performance. This information can help you allocate resources properly and make strategic decisions about investing in new properties or selling underperforming ones.
In addition to looking at individual units, a rent roll can also be used to track the overall rental income for your property over time. This information is essential for determining trends and making projections about future rental income.
Rental Income Analysis
A rent roll provides landlords with a detailed breakdown of the rental income generated by each unit in a rental property. You can use this information to determine which units are performing well and which ones aren’t.
For instance, a rent roll may reveal that one unit is generating substantially more rental income than others you manage, even though they have similar layouts and amenities. This should encourage you to investigate why the unit is more profitable and consider applying the same strategies to other units you own.
On the other hand, a rent roll may reveal that a particular unit is consistently generating lower rental income than others you manage. This should also encourage you to investigate why the unit is underperforming and take steps to remedy any issues. Maybe the unit needs renovations or new amenities.
Outlook for Lenders
Lenders usually require detailed information about your property’s income-generating potential if you want to apply for financing. A rent roll showcases this information in a concise and standardized format.
Lenders often use a rent roll to calculate the property’s net operating income (NOI). Lenders use the NOI to assess the loan amount and interest rates.
Lenders may also use the rent roll to determine the risk associated with your property. By analyzing the occupancy rates, lease expirations, and rental payment history, lenders can figure out the likelihood of the property generating consistent rental income in the future. They use this data to analyze the loan-to-value ratio and interest rates.
In addition, a rent roll also helps lenders assess the property’s market position. By analyzing the rental rates and occupancy rates of similar properties in the same market, lenders decide whether the property is priced competitively and possesses good long-term growth potential.
Conclusion
A rent roll helps landlords manage their units, determine the best approaches to increase profitability, generate more rental income, minimize expenses, and more.
It’s an invaluable tool to improve your business and make your property more appealing to lenders.
