How to Prepare for a Rent Roll Valuation Audit
- Rent Roll Calculator
- Dec 8, 2024
- 4 min read
A rent roll valuation audit is an essential process for property management businesses, whether you're looking to sell, secure financing, or simply assess your portfolio’s performance. Preparing thoroughly ensures you present an accurate and compelling picture of your rent roll's worth.
Here’s a step-by-step guide to help you navigate the process with confidence.
1. Organise Key Property Management Data
The foundation of a successful rent roll valuation audit is having accurate, up-to-date data. Valuers need a clear snapshot of your portfolio, so it’s vital to ensure that the following metrics are correct and readily available:
Number of Properties Under Management (PUM): Confirm the total number of active properties you manage. Make sure this figure excludes any properties that are inactive or transitioning out of your portfolio.
Average Weekly Rent: Calculate the average rent across your portfolio, ensuring this figure reflects the current market conditions and the rents being charged to tenants.
Management Fees: Your average management fee plays a significant role in determining your portfolio’s value. Double-check your calculations for accuracy, as even small errors can affect the final valuation.
Having this data properly compiled and readily accessible in a format such as a spreadsheet or within property management software, will make the audit process smoother for all parties involved.
2. Review Your Lease Agreements
Lease agreements are a critical component of a valuation audit. Auditors may request these documents to validate the information in your rent roll and assess the strength of your income streams. To prepare:
Ensure all lease agreements are easy to access. If you haven’t already, digitise these documents and organise them systematically, either by property or landlord. Additionally, take the time to review key details such as lease expiry dates, rent amounts, and any special terms or conditions.
If there are discrepancies between the lease agreements and your rent roll data, address them before the audit. For example, confirm that the rent amounts recorded match those specified in the leases, and flag any upcoming lease expirations that could impact your future revenue.
Ensure documentation is fully completed, including dates for the commencement ofthe agreement and with clear signatures as required by each party.
3. Address Arrears and Disputes
While your rent roll valuation may primarily focus on income and management fees, arrears and disputes can still influence the perception of your portfolio’s health. Preparing for an audit means addressing these issues proactively.
Begin by identifying any outstanding arrears and taking steps to recover overdue amounts. Open communication with tenants and landlords can often resolve arrears more quickly than formal processes. If there are unresolved disputes – such as disagreements over maintenance or lease terms – document the steps you’ve taken to address them and be transparent with auditors about the situation.
By showing that you have effective systems for managing arrears and disputes, you can reassure auditors (and potential buyers) that your portfolio is well-managed and resilient.
4. Standardise Your Documentation
Clarity and consistency in your documentation can significantly impact the audit process. When auditors encounter disorganised or incomplete records, it can raise questions about the accuracy of the data provided for valuation. To avoid this, take steps to standardise your documentation before the audit.
Use uniform templates for all property management agreements and ensure they comply with legislation. Include all relevant details in these agreements, such as management fees, contract terms, and landlord obligations.
In addition, make sure you’ve accounted for all income streams – not just management fees. Ancillary income, such as letting fees, lease renewal charges, and advertising fees, should be clearly documented and included in your valuation data. Presenting a complete picture of your portfolio’s income can boost its perceived value during the audit.
5. Demonstrate Growth Potential
A strong rent roll valuation isn’t just about current income; it’s also about future potential. Brokers and valuers often look for signs that your portfolio is poised for growth, as this can significantly enhance its appeal.
Highlight key metrics such as your client retention rates, as these are a strong indicator of long-term stability. If you’ve recently expanded your portfolio, showcase this growth with supporting data demonstrating new landlord acquisitions.
Additionally, consider identifying areas where your portfolio could generate more revenue. For instance, are there opportunities to upsell additional services to landlords, such as premium marketing packages or more personalised or regular communications with investors? By positioning your rent roll as a growth-oriented investment, you can improve its overall valuation.
6. Assess Your Rent Roll's Valuation in Advance
Before engaging a broker or valuer, it's beneficial to have a clear understanding of your rent roll's potential value. This not only ensures you're better informed but also helps you approach the process with confidence.
Using a tool like the Rent Roll Calculator allows you to independently estimate your portfolio’s worth based on key data points, including the number of properties under management, average weekly rent, and management fees. By inputting this information, you can quickly generate an estimated value for your rent roll without needing to wait for formal evaluations.
This early assessment offers several advantages:
Identify Areas for Improvement: Spot trends or weaknesses – such as lower-than-average management fees or underperforming properties – and address these before presenting your portfolio for formal valuation.
Test Potential Scenarios: Adjust key variables, such as increasing management fees or expanding your portfolio, to see how these changes might impact your valuation before a broker is engaged.
Save Time and Resources: Enter discussions with brokers or valuers armed with an accurate understanding of your portfolio’s worth, enabling you to focus on their specific insights and recommendations.
With the Rent Roll Calculator, you can explore different scenarios and refine your data at your own pace, setting a strong foundation for a successful valuation audit.
Preparing for a rent roll valuation audit is a detailed process, but it’s also an opportunity to showcase the strengths of your portfolio and identify areas for improvement. By organising your data, maintaining clear documentation, and presenting growth opportunities, you can achieve a valuation that reflects the true value of your business.
Keen to get an understanding of your rent roll's value? Start with the Rent Roll Calculator to estimate your portfolio’s worth and prepare for audit with confidence.
