The first part of a rent roll transaction is the agreement on the multiple of annual management fee commission per property.
For example, I will use 3 times annualised management fee commission per property. The annualised management fee equation is:
Weekly rent x commission rate / 7 days x 365 days = annualised management fee.
i.e. $350 x 7.5% /7 days x 365 days = $1,368.75
The multiplication of sale price is $1,368.75 x 3 = $4,106.25
The second part is that a rent roll business contract will be completed and signed by both parties. There are certain special conditions which need to be met during the contract period, such as:
- Rent Roll Due Diligence
The basis is that the management agreement transfers (or new ones are drawn up and the landlord signs) to the buyer upon settlement. Upon successful completion of the above, the rent roll will settle on the properties which transfer to the buyer, and the sum used above will be calculated on every property that is transferred.
As part of the contract around 20% of the total settlement funds will be held in trust for retention purposes. Retention meaning, that should the buyer lose any management, the funds get adjusted and the balance paid to the seller at the retention settlement.
Written by Tarsi Hynes, Director of The Tarsi Way