A rent roll is a mine of valuable data because it contains current and historical information about a specific property, or a portfolio of properties. It can give astute commercial real estate brokers valuable insights into the assets on their books and help them make smart investment decisions.
In this guide we’ll define what a rent roll actually is and explain some key reasons as to why it’s a useful tool for commercial real estate brokers.
What is a Rent Roll?
A rent roll is a consolidated record of information about either a single commercial real estate asset, or a portfolio of assets. At its simplest, a rent roll is merely a record of the income from a real estate asset. However, it can be so much more. Generally, you’d expect to see the following information in a rent roll:
Physical information about the property or unit:
- Address and/or unit number
Zoning for land use, that is, whether the property is:
- Business – light industrial, commercial, etc.
- Urban, peri-urban and/or suburban
Rental figures showing:
- Rental amount
- How it’s determined (is it per-square foot or some other metric?)
- Start and end (or renewal) dates
- Special terms and conditions like discounts or rent holidays
Where Does Rent Roll Data Come From?
Rent roll information is gleaned from internal sources like lease and tenant agreements. Other sources which enrich a rent roll include:
- The property’s balance sheet for a snapshot of profit and loss
- A property appraisal which gives in-depth information about the property like size, area, number of rooms, and more
- County tax assessors for lot size and land use zoning
- Real estate listing portals if a property has, at some point been sold via real estate agent
- Online GIS analytics tools make most of the key property data easily accessible in one place
7 Reasons Why a Rent Roll is Important in Commercial Real Estate
Now you know what a rent roll is, but why is it such an important item for a broker? Here are seven key reasons.
1. A Rent Roll Contains a Mine of Useful Property and Tenant Information
Like a payroll contains information about employees, a rent roll collects data about income-producing properties, but it works in reverse because a rent roll is more about getting money in than paying out.
A rent roll will usually include the basic data about each property, unit and/or the broader portfolio. There could also be details about current tenants, their leases, and the status of each.
2. A Rent Roll Shows Current Property Performance
A commercial real estate broker uses a rent roll to gain a snapshot of a property’s current cashflow and tenant behavior. This information can help to identify possible problems and also opportunities for increasing cashflow. A rent roll typically includes:
- Average monthly and annual income
- Vacancy rates
- Which tenants pay on time, and which are delinquent
- Expenditure on, for example, maintenance for each unit or property, and how often
3. A Rent Roll Identifies Problem Tenants
Successful property investments rely on good tenants to work well. A rent roll provides an early warning to a property manager that a tenant is having trouble paying the rent, on time or at all. This allows them to act early and avoid costly eviction processes.
4. A Rent Roll is a Predictor of Future Property Performance
Before making a purchase, commercial real estate investors want an idea of a property’s potential performance in terms of rentals and positive returns.
Brokers can use rent roll data to assess whether a specific property is going to bring in a good profit in future.
Typical returns metrics used include:
- Cash-on-cash return
- Nominal returns
- Net operating income
- Internal rate of return
- Cap rate
- Gross rent multiplier
5. A Rent Roll Shows Trends Over Time
In addition to the rent roll containing valuable real time data, a rent roll may have been in existence for many years, if not decades, making it a veritable treasure trove. By being able to view rentals over an extended period, you can analyze trends. These include rising or dropping rental prices, or patterns associated with vacancy rates.
6. A Rent Roll Provides the Foundation for a Broker’s Opinion of Value
While a broker’s opinion of value is exactly that – an opinion – brokers also rely on actual hard data to formulate them. A rent roll is a valuable resource that helps brokers create price value estimates that are as accurate as possible.
7. A Rent Roll Adds Value to Property Analytics and Vice Versa
A rent roll gives a broker detailed insights into how a property or portfolio is performing, which forms a good foundation for property analysts to identify trends and make investment decisions. Online GIS property analytics tools enrich rent roll data by providing demographic trends including income, education levels, and other population data. They are also able to generate high-level analyses of a location’s foot and vehicle traffic, which can indicate potential footfall. Any real estate professional preparing a rent roll may find that property analytics make it that bit richer.
Final Thoughts on Rent Rolls
While a property’s rent roll is, on the face of it, a day-to-day property management instrument, it is also an essential decision-making tool for commercial real estate brokers and investors. In their due diligence processes, the more data the rent roll contains, the greater the insights yielded. This is vital as commercial real estate brokers seek to show how investors can potentially maximize gross rental income and improve the performance of their property investments.