A rent roll can help you as a landlord create a snapshot of profits from all your properties. TE Johnson Management professionals explain it will provide the necessary information to know what is going well in your business and what can be improved. It’s simple, understandable, and easy to update and maintain.
So, what is a rent roll exactly? A rent roll is just a spreadsheet listing out key metrics for each property you manage. A rent roll usually consists of the rent you charge for each unit, when the lease begins and ends, the security deposit amount, and any other applicable fees you may collect from the tenant in that unit.
Rent roll can be extremely helpful for a multitude of reasons. Below are four main points that you need to know when constructing a well-created rent roll to help your business grow.
#1 Tenant Management
It’s your job as a landlord to know what’s going on with the people who live in your properties. Are they staying on top of their payments? When are they moving out? Do they have pets or require a parking spot? A rent roll can help you see this information easily and can help you pull vital lease term and rent collection data.
One of the most important aspects of tenant management that is made easier with a rent roll is that you can see when your tenants are moving out of each unit. This is helpful because you will be able to tell when one month is particularly packed with vacancies, and you can plan your marketing strategy around this expected drop in occupancy. You also can see who is consistently falling behind on payments and may benefit from periodic reminders.
#2 Financial Planning
A rent roll can also help you calculate the net operating income (NOI) for each property. By including information on the rent, late fees, property taxes, insurance, maintenance, and utility costs, you can generate the NOI for each property by subtracting the operating expenses from the income that property brings in. This number is an important metric used to make substantial decisions about your business—for example, maybe you’ll need to hike up rent prices to pay for a needed renovation or improve your marketing strategy for a unit that’s underperforming.
It’s also helpful to plan for next year’s income by using your rent roll. If you have data from the previous year’s finances, it can inform your decisions moving into the following year.
#3 Rental Income Analysis
Using a rent roll for rental income analysis is a great way to utilize this tool. Since you have a detailed breakdown of the rental income generated by each of your units, you can see which ones are performing well above the others and which may be falling behind.
If you have two similar properties in the same market but one is performing much better than the other one, it would be smart to investigate the differences between the two and see what you can change about the underperforming property to try and glean more income from it. For example, maybe the unit needs some newer, more modern amenities or renovations.
#4 Outlook for Lenders
Lenders do not lend large sums of money to just anyone. They conduct a detailed analysis of your finances and the health of your business before making any decisions, and for good reason. They want to make sure that they are lending to someone who will be able to cover loan and interest payments and who will grow their business in the long run. A great way to provide this information to lenders is through a rent roll.
Lenders will usually use a rent roll to calculate your NOI and determine how much to charge you in interest. They’ll also look at occupancy rates, rental payment history, and other factors to see if your business will continue to generate profit in the long run. They may also compare how you’re doing to how other properties are doing in the same market to determine if you’re remaining competitive.
It’s important to maintain a well-organized rent roll so lenders can see all this information at a glance.
Conclusion
A rent roll is easily created, managed, and shared with others. There is no cost to starting one, and there are lots of added benefits to your business. Get started on your rent roll today and start to learn more about the financial health of your real estate business.
