There are many traps in purchasing a rent roll, but there are successful agents using the aquisition of portfolios to develop and build their business.
Here are 5 traps to avoid:
- Is it a good fit for us?
It may sound obvious but do you have office space for the extra staff required to manage your acquisition? Suddenly finding that you need a bigger office can really take the shine off that new purchase and the anticipated extra profit, which is now going to pay for larger premises.
Also, the purchase needs to fit with what you have; in other words, if your average weekly rents are higher than those quoted as the medium for your area while the average rent and management fee on the rent roll you are considering purchasing is well below your average, then the purchase is going to bring your overall rent roll performance down. Therefore, you have to ask the question, is this rent roll right for us?
- Am I buying more work?
Unfortunately, it is a fact of life that some geographical areas of investment properties take a lot more managing than others. So, is it good business to buy a rent roll that has a majority of properties in those areas while your existing portfolio only has a few? Not only may they prove to be unprofitable to you, but also they may give your staff so much grief that you have an exodus on your hands.
- How do I know I am not buying a lemon?
Carrying out due diligence is a very important part of purchasing a rent roll and this is especially so if you are buying privately. In fact, the large majority of disasters we hear about from within the industry are from those who have brought and sold privately. Buyers aren’t infallible, so it makes sense to carry out your due diligence thoroughly or to get someone qualified to do it for you.
- Am I buying sole agency or open agency managements?
In most states, but not all (sorry Victoria), agents can sign the landlord up for one or two years sole agency giving the managing agent some security when selling, as the agreements can be assigned to the purchasing agent. However, if the selling agent has all open agencies then as a buyer you need to be aware that the landlord can leave on short notice. So knowing what type of managements you are buying and setting up the sale with the appropriate retention conditions is critical.
- Keeping landlords on side.
How you inform the landlords of the changes is one of the most critical parts of the sales process. This, along with our last point, can make or break a successful transaction. It is all in the wording and the follow up, which will help insure that you retain the majority of the properties or not. We have years of experience and advice to ensure this part of the process is done properly, minimizing losses.
Avoid these 5 traps to help make the processes of buying a rent roll less painful. But remember, the best way to get a smooth transaction is to allow us to provide you with our years of experience when you’re thinking of selling or buying a rent roll.