Rent roll is an overview of expected income based on key elements of each of your rental properties. When you can estimate your projected profit, you can gain valuable insight into the health of your business and figure out if you need to change anything to have more cash flow. A good rent roll is simple, easy to manage, and a valuable metric for your income analysis.
So, what is a rent roll? A rent roll is a spreadsheet that lets you see rental income for your portfolio of properties. A rent roll is necessary for property managers, investors, and lenders since it makes it easy to determine your business’s financial standing.
The metrics that are included on your rent roll spreadsheet are usually rent charged, lease term, and when the lease starts and ends for each unit you manage. You could also include factors like the amounts you charge for late fees or security deposits. These data points are helpful to track because you can see your entire business at a glance. For example, if you have multiple lease terms ending soon, you can start planning to ramp up marketing tasks and adjust for the change in income you will experience when those vacancies occur.
Also, lenders will often look to your rent roll to decide whether lending to you is a risky investment. They want to be sure that you have enough cash flow to pay back the loan and interest. A well-organized rent roll sheet will give valuable insight to these lenders and tell them whether you’re a good candidate for a loan.
Why Does Rent Roll Matter?
There are a few main reasons why a rent roll is such an important document.
Rental Income Analysis
When you create and maintain a rent roll, it will give you a detailed breakdown as to how each one of your properties is doing. When you have this information, you can see whether one property is performing much better or worse than the others and can adjust your business plan accordingly. If you have one unit that is bringing in significantly less income than others, that should encourage you to look closer into what the issue is with that property. Maybe you need to make some renovations to the space, or the rent is too high for its market.
Tenant Management
Tenant management becomes easier with a rent roll. Since your spreadsheet tracks your tenants’ lease start and end dates, you can develop strategies to keep up with which tenants need lease renewals and can help you see whether you’re in danger of having vacancies in the upcoming months. Also, since you track rent payments through a rent roll as well, you can see which tenants may be falling behind on payments or are consistently paying rent late. That way, you can issue reminders to those tenants or just keep a closer eye on rent collection from those properties.
Outlook for Lenders
As mentioned above, a rent roll is a great way for lenders to see how healthy your business is and determine whether you are a promising loan candidate. When they analyze the data on your rent roll, they can see your occupancy rates, rental payment history, and lease expirations. They also use this information to determine the loan-to-value ratio and interest rates.
A rent roll is also helpful for lenders to see the property’s market position. Rental and occupancy rates of surrounding properties can help lenders see if you’ve priced your unit competitively and whether the unit has good long-term potential for growth.
Financial Planning
Not only can a rent roll help lenders see your future profitability, but it can help you see those metrics as well. You can see incoming profit and expenses for any unit to determine how much cash flow you’ll have both individually and for your business. You can calculate your Net Operating Income (income generated by the property minus operating expenses) for each property to make informed decisions about renovations or potential rent increases.
Conclusion
A rent roll is both simple and effective. You can easily see financial metrics that will help you make informed, important decisions regarding your business’ long-term growth potential. It’s also a helpful collection of data to give to lenders when asking for a loan. Create and maintain a rent roll spreadsheet to give you and your investors peace of mind about your rental properties.
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