3 Top Tips to Maximise the Value of Your Rent Roll Sale
O*NO! You’re thinking of selling your rent roll and want to achieve the highest possible price. Here are our hot tips for getting the most bang for your buck.
Get a higher multiplier / sale price:
Averages: Higher Averages of annual rents and management income leads to a higher multiplier.
Management Term: Ensure the Term left to run on the management agreements is as long as possible to secure the management income.
Portfolio location & desirability: Where the properties are located with reference to the office and other properties in the portfolio – servicing the portfolio is important as the new owner will not want their staff running around the City all day (more efficient if close together).
Ratio: The number of landlords vs the number of properties under management. If one landlord owns a large chunk of the portfolio, this is a risk to the buyer and will lead to a lower multiplier.
Relationships: How close the relationship is between the vendor and their landlords and whether there are special circumstances. If some of the landlords are relatives or close friends of the vendor, they may follow the vendor.
Property type & condition: Mix of houses vs units and their condition. Some believe that managing units is less time consuming and more profitable as some tasks can be palmed off to strata.
Systems: How systematised the collection of rent and other management tasks are performed. Systematised doesn’t necessarily mean automated, however you should still have streamlined procedures in place, especially when it comes to dealing with arrears. Operational and financial hygiene, including arrears management, is crucial. Does the agent have sound debt collection procedures in place?
Restraint: What are the agent’s plans after sale? A restraint of trade will ensure a higher sale multiple.
Franchise: If the business is a franchised business, is the franchise agreement current? Timing becomes extremely important as there are certain points in time in a franchise arrangement which can trigger a higher sale price.
Staff: Will the property managers stay on and increase the retention rate after the sale? Are their employment agreements up to date and in line with any changes in the law?
Ways to plug a leaking purchase price
Keep lost managements as low as possible. Negotiate a lower retention amount and retention period so only a small part of your purchase price is at risk.
A negotiation hot tip – assist with handing the relationships over and have a longer restraint of trade in exchange for less price at risk.
By selling shares in the company rather than selling the rent roll as a business asset, will assist with lost managements. In most states, if you just sell the rent roll then you need to get a new management agreement signed with each landlord. If your management agreement is structured correctly, when you sell the shares in the company, you do not require the landlord’s approval or even their signature.
Highest Price
You shouldn’t simply sell to the person who offers the most money!
Selling to someone who is not capable of looking after your clients to the end of the retention period will lose you more than you gained by taking a higher offer initially.
You should also avoid selling to someone with a bad reputation.
Your next steps
Looking at selling a rent roll in the next 18 months?
To achieve maximum value, it is important that you start as soon as possible getting your ducks in a row – you can’t leave it until you decide to sell if you want the best price possible.
Book a FREE 10 minute chat with our real estate agency law experts today.