When you buy an investment property that you intend to rent out to tenants, there are numerous factors that you’ll need to account for. Many of these factors can be analyzed with the property’s rent roll. As a real estate investor, you can use a rent roll to identify current cash flows and calculate future ones. Sellers often use the rent roll to make sure the property is meeting its performance goals.
Rent rolls provide historical data about a tenant’s rental reliability and habits, which is why these documents are important in property management and real estate investments. Property managers can use this information to find tenants who regularly miss payments, after which they can file an eviction or submit a warning.
Once you invest in real estate, you can use the rent roll form to make sure you meet your property’s daily operational needs, which include everything from maintaining the building to performing crucial repairs. The rent roll allows you to forecast if your rental income will rise or fall in the future. In this guide, you’ll learn how rent rolls work and why accuracy is essential.
What is a Rent Roll?
A rent roll is a document or spreadsheet that gives landlords a comprehensive look at their tenants and the income that their rental portfolio brings in. This document shows a property’s historical rental income.
While property managers and owners use this document to measure cash flow and make sure tenants are paying their rent on time, it’s commonly made available in real estate transactions to prove investment profitability. Lenders and buyers can request a rent roll when doing their due diligence. The key components of a rent roll include the following:
- Tenant names
- Lease terms
- Rental amounts
- Payment status
- Property address
- Property type
- Owner name
- Square footage
- Size of lot
- Total occupants
- Amount of rent that’s still owed
- Prepaid rent
- Security deposit amount
- Year-to-date rent collected
Why Are Rent Rolls Important?
From financial planning to the tracking of rental income, rent rolls can be highly advantageous to property owners, buyers, and lenders. When you buy rental real estate, you’ll need to build positive cash flow by earning more money than you spend to maintain the property and make your monthly mortgage payments. The viability of a rental real estate investment is based on the amount of income the property can generate.
By creating a comprehensive rent roll, you’ll be able to get a real-time look at the cash flow your property is generating. You can track when payments are made and if any are late. You can also compare the information in a rent roll to the income portion of your profit and loss statement.
Financial planning is easy with a rent roll in hand. You can manage costs, set realistic financial goals, and create budgets with the cash flow trends, income, and expense information that can be found in a rent roll.
If you’re in the market for rental real estate, it’s a good idea to request the property’s rental roll to determine if the valuation is accurate. As mentioned before, lenders will also request this document to make sure that the property is generating enough income to be worth its price.
Getting real-time information about when your tenants make their payments can help you maintain tenant relations. If you believe that a tenant is late with one of their payments, you can approach them with the data from your rent roll.
Components of a Rent Roll
There’s a lot of information that you can include in your rent roll, all of which can help with property management and maintaining strong tenant relations. For example, you’ll see an overview of the property, which includes your name as well as the property’s address. You can also identify the type of property that you’re renting out as well as the specific market that your rental is in. For example, you may have a single-family rental that’s situated in a residential zone.
The rent roll also includes a considerable amount of tenant information, such as the following details:
- Tenant names
- Contact information
- Total occupants
- Rent concessions
This document should include in-depth lease information as well. For example, the start and end dates for each lease should be listed. Each tenant should have renewal options as well. Some of the rent details that are placed in this document include the amount, payment history, due date, past due rent, and additional rent.
You can find security deposit information in the rent roll. If you’re tasked with paying additional charges for maintenance fees or utilities, the rent roll should have details about what you’re paying. You can also verify turnover and vacancy rates with this document.
How to Create a Rent Roll
To create a rent roll, you must first gather all the necessary information, which is detailed above. For example, make sure you have the names and contact info for every tenant in your building.
There are two common methods for creating and managing the data on a rent roll, which include manual documentation via spreadsheets or property management software automation. If you’d like to input the information manually, you can use spreadsheet software like Microsoft Excel or Google Sheets.
There are many popular property management software solutions that can help you track the data in your rent roll. For example, Azibo offers centralized documents, cash tracking, rent payment processing, custom reporting, and financial management tools. Before choosing property management software, read reviews and check user ratings.
Once you create a rent roll, perform regular updates and accuracy checks to make sure there aren’t any mistakes that need to be corrected. By routinely verifying this information, you can avoid relying on incorrect data to fuel your investment decisions.
Using Rent Rolls for Financial Analysis
A rent roll can be helpful when you’re analyzing the financial health of a property. As touched upon previously, you can use this document to manage costs, create budgets, and set long-term financial goals. You can also calculate gross rental income by identifying the number of payments you’ve received. Keep in mind that your gross rental income includes the amount of rent you’ve collected without subtracting expenses.
You can also evaluate rental rates to determine if you have room to increase prices in a manner that might attract more qualified tenants. A comprehensive rent role gives you the information you need to analyze:
- Rent collection rates
- Trends in tenant turnover
- Rental performance
This document can be highly effective at helping lenders and investors make more informed decisions.
Rent Roll Best Practices
To maintain accurate and up-to-date rent rolls, adhere to the following guidelines and recommendations. First, make sure you keep extensive documentation that backs up all the information you’ve included in the rent roll. Your rent roll should contain important details about tenant concessions, lease dates, and rental rates. Perform regular updates and audits of your rent roll to ensure the document’s veracity.
During an audit, you’ll need to cross-check the information with your financial statements. To avoid mistakes, update the document immediately when changes to lease renewals or tenant info occur. Make sure you don’t use different formats in the rent roll. Maintaining a standardized format will make it easier for you to identify trends and compare information.
When you analyze your rent roll, it’s highly recommended that you regularly look for rental income trends. If you see any odd patterns in the data, take note of them. You can use this data to locate units that aren’t performing well. If you’re thinking of increasing prices, the data from your rent roll may support your decision.
Legal Considerations
There are certain legal requirements that you need to meet if you create rent rolls for your real estate investments. For example, you may need to adhere to local laws regarding rental payments, tenancy agreements, dispute resolution, and property maintenance. Legal requirements for rent rolls vary considerably from county to county.
Before you buy a rental property, read up on local real estate laws and regulations. When sharing rent roll info, you’ll likely need to comply with privacy laws. For example, some locations require confidentiality agreements to ensure tenant data is safe and secure.
Conclusion
An accurate and up-to-date rent roll can help buyers make sound investment decisions. These documents also make it easier for property managers to keep track of cash flow. Whether you use manual spreadsheet software or automated property management solutions, it’s important that you update your rent roll whenever a new tenant moves in or rental rates increase.