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Commercial real estate investors need to keep detailed financial records. One of the most important is their rent roll, which is a document that lists all the rental units an investor owns with details on the leases. A rent roll provides landlords with a quick snapshot of their tenant base and income. It's also an important document used in commercial real estate transactions since many investors and banks request the rent roll as part of their due diligence process.
How a rent roll works
A rent roll is a document that provides details on rental units owned by a landlord, such as the unit number and current lease details. Because of that, it gives a snapshot of the gross rental income on a property or portfolio of real estate.
Landlords fill out a rent roll as part of their record-keeping process on each of their rental properties. Many also keep a master rent roll for their entire portfolio. They should update their rent roll as soon as there's a change. For example, if a tenant moves out, they should update this document to reflect the vacant unit.
Rent rolls are essential for landlords and property managers because it provides them with an easy-to-read document on the current state of a property's tenant base and income. The up-front work of creating a rent roll will save a landlord time in the future so that they don't need to dig into their leases to find out when a tenant's current one expires.
Best uses for a rent roll
Landlords and property managers use rent rolls to analyze an investment property. For example, a property manager can quickly glance at the document to see how many tenants have leases expiring within the next couple of months. They can then reach out to those tenants to see if they plan to renew. If not, the property manager can start marketing the units.
Landlords also use a rent roll document to do market research by comparing the average rent on their units with those currently on the market. If their rents are lower, they can list those with expiring leases at the higher market rates and boost their income.
Investors and buyers use rent rolls to analyze a potential investment. A prospective buyer might notice that the majority of the leases on a rent roll report are at above-market rates and expire in the next couple of months, suggesting that rental income could decline significantly after acquiring the rental property. On the other hand, a rent roll analysis could tell an investor that there's room for rent increases given what comparable units are going for on the open market. Because the rent roll provides a current snapshot of a property's gross rental income, it's a crucial document for valuing commercial real estate, since investors focus on a property's net operating income, not comparable values.
Information contained in a rent roll
The data on a rent roll can vary by property type. However, most will include the following:
- Property information, such as the owner or management company, address, and type.
- Unit data, like the unit number, square footage, number of beds and baths if it's a multifamily property, and any other features or notes (e.g., unit is handicap accessible, recently remodeled, or the tenant is routinely late with rent.)
- Tenant information such as name, monthly rent, additional fees paid (e.g., pet fee, parking fee, storage fee, etc.), lease term, security deposit held, and rental concessions.
- Monthly and annual rental income summaries, which include any extra amounts paid monthly (e.g., pet fees) or annually (e.g., CAM charges).
How to create a rent roll
Rent rolls are reasonably easy to create. A new landlord can design one from scratch using a spreadsheet program. They can also use an online rent roll template or purchase specialized property management software to complete the task. Another option for those who don't have the time to fill out and maintain their rent rolls is to hire a property manager and have them complete it.
Rent rolls are essential for commercial real estate investors
Rent rolls provide landlords with a quick snapshot of the current leases on their properties. That can assist them in making decisions. A rent roll report is also a crucial supporting document for real estate transactions because lenders and buyers use them as part of their due diligence process. Because of the importance of a rent roll, landlords should not only have one for each property but also make sure they keep them up to date.
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