4 Critical factors when buying a rent roll
You’re thinking of buying a rent roll but have never been through the process. You may be thinking of going out on your own, or perhaps looking to expand your already successful agency. These are the most critical things you need to know before taking that leap.
Due Diligence
Whilst many hear due diligence and think snooze fest, it is critical. But what is due diligence? In a nutshell, you are checking whether the vendor’s claims as to the state of their business are in fact true so you can determine if the asking price is fair. Whilst due diligence is time consuming, it is an absolute must have in any purchase. Just like you wouldn’t buy a second hand car without having a mechanic look over it first, you should never buy a rent roll without first looking under the hood.
Multiplier
The multiplier is the magical number that determines the value of the rent roll. You then times the gross annual management fees by the multiplier to get your purchase price.
Example: $148,680 (annual management fees) X 2.85 (multiplier) = $423,738 (rent roll value)
Whilst it is not rocket science, the multiplier is determined by way of valuation and takes into consideration many factors, such as:
Averages: Averages of annual rents and management income.
Management Terms: Term left to run on the management agreements and the authority given to the agent.
Portfolio Location & desirability: Where the properties are located with reference to the office and other properties in the portfolio.
Ratio: The number of landlords vs the number of properties under management.
Relationships: How close the relationship is between the vendor and their landlords and whether there are special circumstances.
Property type & condition: Mix of houses vs units and their condition.
Systems: How systematised the collection or rent and other management tasks are performed.
The retention
We all know that relationships are central to real estate agents. Many clients of ours do not do business with the brand, but the person. When buying a rent roll, you are attempting to buy these relationships. Not all landlords will want to stay – there is always a level of churn. When buying your rent roll, you need to address this churn (known as ‘lost management’s), by putting in place a mechanism where you get a ‘refund’ for the managements lost. This is done by way of a retention period and a retention amount. If you lose managements in the retention period, you will be refunded part of the purchase price, up to the capped retention amount. Whilst these numbers vary per transaction, it will depend on the type of rent roll and your area, but a rough guide is a 3-6 month retention with 5%-10% of the purchase price ‘at risk’ as the retention amount.
The restraint of trade
To protect the asset that you just paid a hell of a lot of money for, you need to ensure that the vendor won’t compete against you. Imagine paying for your shiny new toy, then having the former principal swoop in and take it from underneath you. To protect your new business asset, you must ensure that the vendor will not steal their clients back. As mentioned above, relationships are key in our industry and must be protected. You will also want to restrain the vendor from taking your new staff and luring them over to their new venture.
Next Steps
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Frequently Asked Questions (FAQ)
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Due diligence is the process of verifying the vendor’s claims about the rent roll business. It involves checking financials, management agreements, and operational details to confirm the asking price is fair and accurate. Think of it as “looking under the hood” before you buy.
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A rent roll is typically valued using a multiplier method. You multiply the gross annual management fees by a set multiplier (e.g. 2.85) to determine the purchase price. The multiplier varies depending on factors like location, portfolio quality, and systems.
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The rent roll multiplier is affected by several factors, including average rental income, management agreement terms, property location and desirability, landlord-to-property ratio, client relationships, property type and condition, and the level of systemisation within the business.
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A retention clause is a mechanism that protects the buyer if managements are lost after settlement by allowing part of the purchase price to be refunded. It typically applies for 3–6 months and places around 5%–10% of the purchase price at risk.
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A restraint of trade is important because it prevents the vendor from competing with the buyer after the sale. It protects the value of the rent roll by ensuring the seller does not attempt to take back clients, staff, or business relationships.
Kristen Porter – Partner, Realgate Legal
Kristen Porter is one of the Partners at Realgate Legal. With over 20 years of legal experience and dual degrees in Law and Commerce, Kristen brings a rare blend of legal expertise and commercial insight to every matter. She is a trusted advisor to business owners and agency leaders across Australia, helping them build profitable, legally-sound businesses.
Known for her practical, no-fluff advice, Kristen specialises in real estate agency law, corporate, and privacy law and regularly presents at industry events. At Realgate Legal, Kristen leads a team committed to making the law clear, actionable, and always aligned with your business goals.
Boring legal stuff: This article is general information only and cannot be regarded as legal, financial or accounting advice as it does not take into account your personal circumstances. For tailored advice, please contact us. PS - congratulations if you have read this far, you must love legal disclaimers or are a sucker for punishment.