When real estate investors buy a rental property what they are really purchasing is the rent roll or the gross rental income that the property generates.
At first glance that may seem like an odd concept, because we’re so used to thinking about single-family homes on a price-per-square-foot basis or small multifamily property on a price-per-unit basis.
But when you think about it, taking a hard look at the total rental income makes good investment sense. After all, without knowing exactly how much money is coming in every month from tenant rent payments, it’s impossible to accurately forecast the potential profitability of a rental property investment.
A rent roll is one of the easiest documents a real estate investor can create, and also one of the most important reports used by managers, investors, and sellers when the time comes to sell your rental property.
A rent roll is an easy-to-read document that shows a rental property owner the tenant information, rents due, lease terms, late fees, and security deposits.
Unlike a P&L or cash flow statement, the rent roll focuses solely on the gross rental income collected and not the property operating expenses or mortgage payment.
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Gross rents collected provide the cash a rental property investor needs each month to pay the bills, the mortgage, and profit to the owner. It’s important to accurately identify the cash coming in each month so that the rent roll can accurately reflect the true income-producing potential of a rental property.
A rent roll reflects the past, current, and potential rental income of the property. People who use a rent roll include:
The main uses of a rent roll include:
There are also a variety of financial metrics and real estate formulas that depend on an accurate gross income from the rent roll:
Net Operating Income (NOI)
Rental property investors can easily create a rent roll using a spreadsheet software program such as Microsoft Excel, Google Sheets, LibreOffice Calc, or OpenOffice Calc.
The specific information on a rent roll can vary based on the property and the objectives of the individual investor, but generally includes the following information:
Potential buyers and lenders will likely have several different properties they are viewing at the same time. The property information at the top of your rent roll document should make it easy for them to identify yours:
The rent roll spreadsheet should contain rows with the following information specific to the house or unit in a multifamily property:
This section of the rent roll contains the total gross rent collected by month and by year for the property:
Here’s a look at an excerpt from a sample rent roll for a couple that owns three single-family homes in Charlotte, North Carolina.
One tenant is new, one is “seasoned” with a 2-year occupancy length, and another tenant is on a month-to-month lease. Additional rental income includes monthly pet rent, extra monthly rent for roommates, and a late fee:
We’ve also put together two fully-editable rent roll templates in both Excel and Google Sheets format:
Here are some other good online resources to find a free rent roll template if you’d like to look at other some other examples:
As we mentioned at the beginning of this article, when real estate investors buy a rental property what they are really purchasing is the rent roll or the gross rental income that the property generates.
Sellers look for ways to grow the rent roll to help increase the sales price of their property, while buyers hope to grow the rent roll to increase the value of their investment once escrow closes.
Some of the best ways to grow your rent roll include:
Conduct thorough market research to forecast if the market will favor landlords or tenants over the next 5-10 years. Look for statistics such as historical rent growth, percentage share of rental households, and population and job growth trends.
Prepare a rental market analysis to determine the fair market rent, then create marketing strategies and use rental listing websites to attract the best possible tenants as quickly as possible.
Keep cash flow steady and tenant turnover low by utilizing online tenant screening services and free property management software to conduct thorough background checks, accept online rent payments and give tenants a way to make maintenance requests quickly and easily.
Hire a local property manager to handle tenant relations and the day-to-day details of running the property to build a good relationship with tenants who will renew their lease year after year.
A rent roll is a surprisingly powerful document despite being so easy to create. Rental property owners, managers, lenders, and buyers use a rent roll to understand the gross cash flow being generated and the possible opportunities for increasing property value by growing the rent roll.
Using a good rent roll template can help to improve gross rents, increase long-term yields, and identify new rental properties that may offer the highest returns.
This article, and the Roofstock Blog in general, is intended for informational and educational purposes only, and is not investment, tax, financial planning, legal, or real estate advice. Roofstock is not your advisor or agent. Please consult your own experts for advice in these areas. Although Roofstock provides information it believes to be accurate, Roofstock makes no representations or warranties about the accuracy or completeness of the information contained on this blog.
Jeff has over 25 years of experience in all segments of the real estate industry including investing, brokerage, residential, commercial, and property management. While his real estate business runs on autopilot, he writes articles to help other investors grow and manage their real estate portfolios.
