July 6, 2023
Welcome to our ultimate guide on rent rolls for real estate. Whether you're a seasoned real estate investor, a property manager just starting out, or simply an intrigued reader, our guide will unpack everything you need to know about rent rolls - what they are, why they're indispensable, and how to use them effectively. Plus, we offer a free, easy-to-use template designed to help you streamline your property management tasks. So gear up for a deep dive into the world of rent rolls, as we unlock the secrets to making this tool a real estate powerhouse in your portfolio.
I decided to do a deep dive into rent rolls because for many of our clients that are seeking financing for a real estate property, the lender is going to ask for the property’s current rent roll in addition to a property pro forma.
So in this article I plan to tackle the following:
With that as our guide, let’s dive in!
A rent roll is an important document in real estate investing and property management that provides a snapshot of the current income generated by a property or a group of properties. It's essentially a detailed record of all the rental units under the owner or manager's control, showing the status and income of each.
Rent rolls are pivotal for landlords, property managers, and potential investors, as they provide a clear overview of the property's financial health and performance. They are often used when purchasing, selling, or financing properties to provide a verified income statement for the property in question. A well-maintained and up-to-date rent roll can be a valuable tool in maximizing rental income, improving tenant management, and assessing investment opportunities.
A comprehensive rent roll should include the following key elements:
- Tenant Information: This includes the tenant's full name and contact information. If it's a commercial property, the business name should be included.
- Unit Details: List each unit separately, identifying it by a specific number or letter. If it's a building with multiple units, you should also include the unit's size and type (e.g., one-bedroom, studio, etc.)
- Lease Term: The lease start and end dates should be clearly outlined for each tenant. This helps track lease renewals and vacancies.
- Monthly Rent: This is the amount the tenant pays each month. It's important for calculating the total potential income from the property.
- Security Deposit: Include the amount of money taken as a security deposit at the beginning of the lease.
- Rent Due Date: It's helpful to include when the rent is due each month, especially if there are different due dates for different tenants.
- Payment History: This will show if the tenant pays their rent on time or if they have any outstanding balances.
- Other Fees and Charges: This might include charges for parking, pets, utilities, or any other additional costs that may apply to the tenant.
- Vacancies: It's important to include information about vacancies, including how long a unit has been vacant and any prospective tenants.
- Lease Expirations: Make note of upcoming lease expiration dates to help plan for potential vacancies.
A rent roll report is usually a table or spreadsheet that organizes all relevant data in an easily digestible manner. While the specifics can vary, a typical rent roll report might look something like this:
The report should also include a summary section at the end to highlight key totals and averages, such as total monthly income, total security deposits held, total outstanding balances, average rent, and vacancy rate.
Creating a rent roll involves several steps that require organized data collection and a systematic approach. Here's how to get started:
- Define the Necessary Fields: Identify the information you need to include in your rent roll. Refer to our previous discussion about what should be included in a rent roll for a comprehensive list.
- Choose a Format: Decide how you want to organize your rent roll. A spreadsheet program like Excel or Google Sheets is often a good choice, as they allow for easy calculations and updates.
- Create the Structure: In your chosen format, create the columns (fields) for each type of information you want to include: tenant name, unit number, lease terms, monthly rent, security deposit, etc.
- Input Tenant and Property Data: Fill in the rows with the data for each rental unit. Ensure all the data is up to date and accurate.
- Update Regularly: Regularly update your rent roll to keep it current. Include any changes, such as new tenants, rent increases, and lease expirations.
- Summary Section: Create a section at the end of the rent roll that summarizes key data, such as total monthly rental income, total number of units, number of occupied units, number of vacant units, etc. This can provide a quick snapshot of the property's performance.
A certified rent roll is a rent roll that has been validated and attested as accurate and complete by the property owner or an authorized representative, like a property manager. It serves as an official document that provides potential investors, lenders, or buyers with a detailed and accurate snapshot of a property's rental income.
In addition to the standard information found in a rent roll (tenant details, unit information, lease dates, monthly rent, security deposits, and so on), a certified rent roll often includes a statement from the owner or authorized representative. This statement attests that the provided information is true to the best of their knowledge.
The certification statement might look something like this:
"I, [Name], the [Owner / Property Manager / Authorized Representative], hereby certify that the above rent roll accurately represents the rents currently charged to the tenants of the property, the lease start and end dates, and the security deposits held as of [Date]. To the best of my knowledge, all information presented in this rent roll is complete and correct."
This declaration adds credibility to the document and provides assurance to third parties, such as lenders or potential buyers, about the veracity of the property's income data. However, it's crucial to note that misrepresenting information on a certified rent roll can have serious legal implications. Always ensure that the data you certify is as accurate and up-to-date as possible.
A rent roll serves as a vital tool in the hands of a property manager, offering several advantages:
- Income Tracking: A rent roll provides a clear snapshot of the property's income, detailing how much is being made from each unit. This allows for effective monitoring of the property's performance and profitability.
- Lease Management: By including lease start and end dates, a rent roll helps track when leases are up for renewal, when to increase rents, or when to expect potential vacancies.
- Tenant Management: Rent rolls contain crucial information about tenants, which can be helpful in resolving disputes, tracking payment history, and maintaining overall tenant records.
- Financial Planning: With a comprehensive overview of the property's income, a rent roll aids in budgeting, forecasting future earnings, and planning for expenses such as maintenance, upgrades, or marketing for vacancies.
- Asset Valuation: The rent roll is a key document used to determine the value of a rental property. It shows the property's income potential, which is a central factor in property valuation.
- Loan Applications and Sales: Lenders, potential buyers, or investors often require a detailed rent roll to assess the property's income potential. An up-to-date, comprehensive rent roll can thus facilitate successful loan applications or property sales.
- Strategic Decisions: By tracking vacancies, payment delays, or other trends, a rent roll can provide insights that guide strategic decisions - for example, targeting marketing efforts to fill vacancies faster or identifying when to adjust rent prices.
A rent roll is a critical document for lenders in evaluating the financial health and potential risks of a rental property before approving a loan. Here's how lenders use a rent roll:
- Assessing Property Income: Lenders use rent rolls to verify the property's income. They examine the rents being charged and the occupancy rate to understand the property's current cash flow and future earning potential.
- Calculating Debt Service Coverage Ratio (DSCR): DSCR is a measure of the cash flow available to pay current debt obligations. Lenders use rent roll data to calculate DSCR and determine whether the property generates enough income to cover the loan payments.
- Evaluating Tenant Mix and Stability: Lenders look at the tenant information to assess the stability of the rental income. Long-term, reliable tenants can be a positive sign, whereas high turnover or many vacancies might raise concerns.
- Confirming Lease Terms: Lease terms and conditions, including the duration, rents, and escalation clauses, are checked to confirm the continuity of income during the loan term.
- Analyzing Payment History: A rent roll can show whether tenants consistently pay on time, which can indicate the reliability of future income.
- Property Valuation: Lenders often use a property's income (partly based on the rent roll) to determine its value using the income approach.
- Risk Assessment: By looking at vacancies, delinquencies, and turnover rates, lenders can identify potential risks and decide whether to approve the loan and at what terms.
We created a simple free rent roll template that you can use as a starting point for your properties rent roll.
Download our free rent roll template here.
I hope this has been helpful for you! If you have any questions or need help developing a most sophisticated rent roll, please feel free to reach out!