What is a Rent Roll?
Rent Roll
A rent roll is one of the most valuable financial documents in the world of commercial real estate. Used throughout the industry for a variety of different purposes, rent rolls contain useful information on the profitability of an income producing property. From buyers trying to analyze current and future cash flows, to owners monitoring rents to ensure that the property is performing up to par, and even lenders reviewing the rent roll to help make decisions on whether or not to approve a loan, the rent roll document is easily of huge importance to commercial real estate investing.
What is a Rent Roll?
For any income producing property, the rent roll is a detailed, itemized report of each unit. The details presented on a rent roll includes valuable insights such as whether a unit is occupied or not, details on the tenant, the payment history and security deposit being held for that tenant/unit, the length of time the unit has been occupied by the tenant, and finally the date on which the lease expires.
In general, besides being a useful informational tool for owners to have when managing a property, rent rolls are often used in commercial real estate transactions to help sellers, buyers, and lenders better understand a rental property’s stream of income. While multifamily may be the first type of asset that comes to mind in regards to tenants and rent, rent rolls exist for any commercial real estate rental asset including (but not limited to) retail, office properties, mixed-use developments, etc. Rent rolls can also be created at the portfolio level, in the form of a consolidated rent roll for a group of single-family rental homes.
What information does a rent roll provide?
A rent roll document provides valuable details on the rental units of a commercial property. Generally speaking, rent roll data varies by property type. In many cases, however, rent rolls typically include information about the property itself such as the owner, address, management company (if applicable), and asset type.
There is more variation in information regarding unit data, but some of the more common data points include unit number, square footage, and number of beds/baths for a multifamily property. Beyond that, rent rolls also provide data on the tenants themselves, including name, monthly rent obligation, fees paid, lease term length, rental concessions, and security deposit status. Along with all of the aforementioned information, many also include a monthly or annual breakdown of rental income summaries essentially providing a snapshot of the gross rental income on a property or real estate portfolio.
What is the Purpose of a Rent Roll?
Rent rolls are typically created as a form of record keeping for a tenant-based income producing property. Because of the type of information provided in a rent roll, it is a document that is meant to be updated as soon as any type of change occurs that would cause discrepancies against the document. For example, the rent roll should be updated immediately if a tenant moves out, and reflect the unit as vacant.
When it comes to the daily operations of a commercial property, rent rolls are essential for landlords and property managers as an easily navigable document that provides a detailed look at the current state of a property's tenant base and income flow. It is incredibly common for landlords to utilize the rent roll as the primary method for keeping track of lease expiration dates.
How is Rent Roll Data Used?
We’ve already mentioned how useful a rent roll is to the actual owner of a commercial property. Landlords and property managers use rent rolls in many different ways in order to analyze an investment property. A rent roll can show, for example, how many leases are expiring within the next couple of months. This information is useful for contacting those tenants to see if they intend to renew the lease, and in the event that they don’t intend to extend, the property manager can begin marketing the units in an effort to reduce vacancy times.
Rent rolls are also amazing to use for market research. They make it a much easier task to compare the average rents of a property’s units with comparables currently on the market. Whatever adjustments to pricing that are deemed necessary can be made to the leases next up to expire. This rent roll dependent strategy helps to keep prices competitive.
Investors and buyers are also frequent users of rent rolls, because they use them to analyze a potential investment. Understanding rent roll data can make all of the difference between a profitable acquisition and an investment flop. For example, if the majority of leases on a rent roll are set to expire in the next couple of months, and the rents are above market rate, that would suggest the possibility of a drop in rental income after the property has been acquired. Alternatively, a rent roll analysis in conjunction with research on comparables could highlight the opportunity for a rent increase, and by extension, more income.
An accurate rent roll gives investors a real-time representation of the gross cash flow the property is generating. Analyzing this data can help investors understand whether the gross rental income is likely to increase, decrease, or remain constant in the foreseeable future.
Furthermore, the rent roll can be compared with the income portion of the profit and loss statement (P&L) which can help investors ascertain if the gross income reported on the P&L is accurate.
Buyers are able to determine more granular information like how long a tenant has occupied the home, which may help in the estimation of how likely they are to continue paying the rent. Buyers would also be able to tell whether or not tenants have been paying the rent on time and in the amount agreed to on their leases.
How to create a rent roll
Since they are typically just a collection of available data, rent rolls are not difficult to create. As a matter of fact, rent rolls are often created using common spreadsheet software. There are also a ton of different online rent roll templates, and even specialized property management software that can be used to create them. No matter the actual software used, however, setting up the rent roll is as simple as plugging-in information in the correct places.
Related Questions
What is a rent roll and how does it affect apartment loan applications?
A rent roll is a list of a property’s current tenants and how much they pay in rent. It is a detailed, itemized report of each unit, including whether a unit is occupied or not, details on the tenant, the payment history and security deposit being held for that tenant/unit, the length of time the unit has been occupied by the tenant, and finally the date on which the lease expires. Rent rolls are often used in commercial real estate transactions to help sellers, buyers, and lenders better understand a rental property’s stream of income.
In apartment loan applications, rent rolls are a key financial document that lenders use for evaluating feasibility. Rent rolls provide lenders with key data points such as the market rate of the unit that is being rented, what the tenants are actually paying, concessions, late payments, deposits, the type of unit rented, lease start and end dates, and more. All of these details are considered to be crucial in the underwriting and evaluation of an apartment finance transaction.
What information is included in a rent roll?
A rent roll document provides valuable details on the rental units of a commercial property. Generally speaking, rent roll data varies by property type. In many cases, however, rent rolls typically include information about the property itself such as the owner, address, management company (if applicable), and asset type.
There is more variation in information regarding unit data, but some of the more common data points include unit number, square footage, and number of beds/baths for a multifamily property. Beyond that, rent rolls also provide data on the tenants themselves, including name, monthly rent obligation, fees paid, lease term length, rental concessions, and security deposit status. Along with all of the aforementioned information, many also include a monthly or annual breakdown of rental income summaries essentially providing a snapshot of the gross rental income on a property or real estate portfolio.
In addition to showing rental income, a rental roll typically provides additional information including tenant names and contact information, lease start and end dates, security deposits, CAM reimbursements, rented square footage, space descriptions, and other information.
For any income producing property, the rent roll is a detailed, itemized report of each unit. The details presented on a rent roll includes valuable insights such as whether a unit is occupied or not, details on the tenant, the payment history and security deposit being held for that tenant/unit, the length of time the unit has been occupied by the tenant, and finally the date on which the lease expires.
In summary, a rent roll typically includes information about the property itself, unit data, tenant data, rental income summaries, tenant names and contact information, lease start and end dates, security deposits, CAM reimbursements, rented square footage, space descriptions, and other information.
How can I use a rent roll to improve my chances of getting an apartment loan?
Using a rent roll can help you qualify for an apartment loan by providing lenders with key data points about the property. The rent roll should include information such as the market rate of the unit, what the tenants are actually paying, concessions, late payments, deposits, the type of unit rented, lease start and end dates, and more. This information is crucial for lenders to evaluate the feasibility of an apartment finance transaction. Additionally, lenders will typically require a debt service coverage ratio (DSCR) of 1.25-1.30x, meaning that the building’s income must exceed its annual debt service by at least 25-30%.
What are the benefits of having a rent roll when applying for an apartment loan?
Having a rent roll when applying for an apartment loan can be beneficial in a few ways. First, it can provide lenders with key data points such as the market rate of the unit that is being rented, what the tenants are actually paying, concessions, late payments, deposits, the type of unit rented, lease start and end dates, and more. This information is crucial in the underwriting and evaluation of an apartment finance transaction.
Second, rent rolls can be used to analyze a potential investment. Understanding rent roll data can make all of the difference between a profitable acquisition and an investment flop. For example, if the majority of leases on a rent roll are set to expire in the next couple of months, and the rents are above market rate, that would suggest the possibility of a drop in rental income after the property has been acquired. Alternatively, a rent roll analysis in conjunction with research on comparables could highlight the opportunity for a rent increase, and by extension, more income.
Third, an accurate rent roll gives investors a real-time representation of the gross cash flow the property is generating. Analyzing this data can help investors understand whether the gross rental income is likely to increase, decrease, or remain constant in the foreseeable future.
Finally, buyers are able to determine more granular information like how long a tenant has occupied the home, which may help in the estimation of how likely they are to continue paying the rent. Buyers would also be able to tell whether or not tenants have been paying the rent on time and in the amount agreed to on their leases.
What are the risks of not having a rent roll when applying for an apartment loan?
Not having a rent roll when applying for an apartment loan can have serious implications. Without a rent roll, lenders will not have key data points such as the market rate of the unit that is being rented, what the tenants are actually paying, concessions, late payments, deposits, the type of unit rented, lease start and end dates, and more. This information is essential for lenders to evaluate feasibility in apartment properties and multifamily loan transactions. Additionally, if a lender inspection discovers issues during the process, they could have serious consequences such as an increase in interest on your loan or other additional fees.