I completed my Multifamily Underwriting Series recently and realized there was a gap – the Rent Roll. Let’s fix that today.
For starters, it’s Rent Roll, not Rent Role, as I have seen. It’s roll as in roll-call. It’s a quick way to look at the rental status of the property. It generally has the units and type (bedrooms/bathrooms). It might have the square footage or any special accoutrements, like a fireplace. It’ll usually tell you when the leases end and which units are vacant.
In our example, the lease date is when the lease was signed. This rent roll tells you when the leases end at Lease End Date. You’ll see that every lease was for 12 months if you do the math. Typical leases such as these, turn into month-to-month leases after 12 months, so a column is here to tell us that. Additional possibilities you might see include market rent, fees, and pet rent.
Anatomy of a Rent Roll
Lease Date: This is when the lease was signed
Address: The address of the building
Unit: The unit number
Type: bedrooms/bathrooms. Generally more beds and more baths is desirable, so will result in a higher rent.
Occupied: Whether the unit currently has a tenant in it.
Lease End Date: The last day of the lease. If this is close, the property manager will be wanting to approach the tenant to see if they want to re-lease. Usually the rent will rise a bit at this time. In this area, we look to see how old that end date is. Generally, having tenants on month-to-month leases is bad because you don’t know how long they will stay.
Sec. Dep.: The security deposit. If they are low, such as 123 Main unit 101, you could have some major unreimbursed expenses when they move out.
Rent: How much the tenant pays per month. Look at the similar units of the 2/1 type. They have rents all over the place. 123 Main unit 105 is $875, but unit 103 is $1,025. That’s a huge difference for the same type of unit. I call this the rent spread, and the bigger it is, the less likely that the owner has been keeping up on rent increases. It presents a big value-add for you, as you may be able to increase rents on day 1.
On-lease: This could be titled different things, but it shows whether they are currently on-lease or month-to-month. More MTMs here means the current owner has not been actively talking to tenants about re-signing.
Putting it all together can give you an indication of the health of the property and whether there is any room to improve the rents. Also, it’ll tell you whether there will be a lot of work to do getting tenants on new leases. Make sure the rent roll is part of your properties’ analysis and that of any deals you evaluate.
