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Investment Strategy, Rental Accounting

What Is A Rent Roll And Why Is It Important For Real Estate?

A rent roll provides landlords with a quick snapshot of their tenants and portfolio income. It’s an important document used in real estate transactions, many investors and banks request a rent roll as part of their due diligence process. Because, of its versatility and utility it’s recommended that landlords keep an accurate, up-to-date rent roll for each of their properties and for their portfolio as a whole.

Rent rolls can be used for any type of income-producing real estate to determine its current and future profitability and identify opportunities for increasing cash flow. The information can also be used in some of the essential financial performance formulas that every landlord should know. For example, gross rent multiplier (GRM), capitalization rate, and internal rate of return (IRR). Read more about these real estate formulas here.

With Landlord Studio you can instantly generate and share a range of professional customizable reports, including a rent roll report.

What Details Are In A Rent Roll?

The data on a rent roll can vary by property type. However, most will include the following:

  • Property information, such as the owner or management company, address, and property type.
  • Information on each unit such as the unit number, square footage, the number of beds and baths if it’s a multifamily property, and any other features or notes.
  • Tenant information including their name and contact details.
  • Lease details such as the lease term, monthly rent, security deposit, and additional fees.
  • Monthly and annual rental income summaries, which include any extra amounts paid monthly.

Related: What Are A Landlords Objectives For Financial Reporting?

4 Main Use Cases of a Rent Roll?

Gain a quick overview of property performance and gross rental income

As we mentioned before the report gives a quick snapshot of the current gross rental income as well as showing tenancy periods and rent expected vs rent collected. This allows landlords to efficiently review their tenancies and income levels to get an understanding of vacancy periods, as well as comparing expected gross income over a time period to realized income.

Review current and past tenancies

Property managers and landlords can also use it to gain insight into the tenancy history of a property. This includes learning details of vacancies and length of vacancies, as well as reviewing lease expiry dates.

If a landlord does find a lease is expiring soon they can reach out to the current tenant to either offer them a lease extension or begin the process of showing the property and finding new tenants. This allows them to minimize vacancy periods.

Do market research

The rent roll includes important details like square footage, bedrooms, and bathrooms as well as rent amount. Having all these details in one report allows landlords to quickly compare their properties – or potential investments – against other similar properties on the marketplace. With this data they can ensure the property is a fair price, and establish an accurate and reasonable monthly rental amount.

Analyze potential investments

Because the rent roll provides a current snapshot of a property’s gross rental income, it’s a crucial document for evaluating a potential real estate investment.

How a Rent Roll is Used by Prospective Buyers

A rent roll is particularly useful for buyers. It shows them how much income is being collected currently as well as how likely this income is to continue. Additionally, by presenting the data in this way, knowledgeable investors will be abv to spot opportunities for cash flow growth.

Understanding current cash flow

If, for example, you were buying a multi-unit property with four units in January. You would check the rent roll for the property and this would show when each of the current leases is going to expire. If all four leases expire in February, then you are likely to have multiple vacancies which would negatively impact your cash flow. This may not be a deal-breaker, but at least with this data, you can plan for this lost cash flow.

A prudent buyer may also require the seller to renew the leases due to expire as a condition of closing so that the property continues to generate at least the current level of rental income after you close escrow.

How long have tenants lived in the property?

The rent roll will tell you how “seasoned” the tenants are. Tenants that have occupied a property for longer are more likely to continue paying the rent, less likely to cause issues than new ones, and more likely to renew the lease when it expires.

Generally, you can think of a “seasoned” tenant as one that has occupied the property for at least 6 months and always paid rent in full and on time. However, as mentioned above the longer the tenant has occupied the property the better.

Is the rent being paid in full and on time?

By reviewing the rent roll you can review whether or not the rent is being paid on time and in full every month as agreed upon oin the current lease agreement.

If for example, in one unit the tenant has been consistently paying late over the last year, this would be an indicator that they are struggling and may need to leave or be evicted sooner rather than later.

Is there an opportunity to increase cash flow?

The rent roll may reveal opportunities to increase cash flow. For example, if the current rent rates are significantly below market then bringing them up to market rates when the lease ends would be a simple and effective way to increase profitability.

How a Rent Roll is Used by Landlords and Property Managers

Landlords and property managers can also use the rent roll to improve their rental property management. For example and few ways for a landlord or property manager to use a rent roll include:

  • Identify any tenants behind on payments at a glance.
  • Review current leases and identify which ones are expiring soon. This will allow you to send a lease renewal or non-renewal letter to the current tenant and if necessary get your rental listing in order and start marketing to minimize your vacancies.
  • Do a market analysis to determine if your current rental rates for each of your units are competitive in the current market.
  • Review the security deposit paid by a tenant to ensure.

Why a Rent Roll is Important to Lenders

Lenders often use the rent roll to determine how successful/ profitable the property is. This will inform their decisions when deciding whether or not to loan you money for future investments, or when analyzing your existing properties for refinancing purposes.

Using the rent roll they can tell historic and current income and use this data to predict future income. If a property has been generating consistent income and has seasoned tenants lenders may see little risk in the investment.

On the other hand, if the property has a history of high tenant turnover and a high vacancy rate, there may be an issue with the property management company or landlord managing the property, or even with the rental property itself.

Using Landlord Studio’s Rent Roll Template

A rent roll report is a crucial supporting document for real estate transactions because both lenders and buyers use them as part of their due diligence process. Because of the importance, landlords should have one for each property and the portfolio as a whole and ensure they keep them up to date.

A new landlord can design one from scratch using a spreadsheet. Alternatively, they can use property management software like Landlord Studio.

Using Landlord Studio you can instantly generate a range of reports whenever you need them. You can filter the reports by property, date range, and owner, allowing you to create rent rolls for individual properties or entire portfolios. 

As long as you keep your rental property data up to date within the software you can instantly generate an accurate up-to-date rent roll report with a few taps.

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Final Thoughts

The rent roll is a report that provides detailed information about the property, the tenant, and rents. As such it is a valuable tool used by rental property investors to maximize gross rental income and improve property performance. The document can be used for a variety of purposes which is why it’s important to have one for individual properties and portfolios as a whole and to spend time up dating them regularly.

Investment StrategyProperty Management Software

Ben Luxon

Ben is the editor and lead writer for Landlord Studio. He has worked with real estate professionals all over the world and written educational articles on tech, real estate, and financial growth for sites such as Forbes, TechBullion, and Business Magazine.

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