Purpose of the Rent Roll

 Purpose of the Rent Roll

In the Tom Cruise movie, The Last Samurai™, a hobby of one character in the movie is to find the perfect cherry blossom.  In the end, he concludes that they are all perfect, just as they are. This is unfortunately not true in rent roll analysis; few are perfect, most are flawed.

The purpose of the rent roll is to act as a current and historic record of rental revenue due the lessor based on valid, in–force leases.

Standing behind this record of rental revenue is the payment history of the residents.  This is the tail that wags the dog. The rent roll reports the amount of income you can anticipate for a given period, usually a month.  The further reach of the rent roll is to convey in black and white the stability, quality and longevity of projected income.

Most income property is purchased with the intent to own it for a period of time: one year, five years, ten years etc.  So while it is important to know the current income, it is equally, if not more important, to understand the viability of the asset and its income stream going forward.

As they say in baseball, catch the ball, hit the ball and throw the ball. A great hitter hits the ball 30% to 40% of the time. When making decisions on placing millions of dollars of equity into millions of dollars of hard assets you must have a perfect record when validating income. Anything less is a financial disaster.

You are looking to see if the monthly income statement matches the rent roll. Restated, the income statement and rent roll should tell the entire world the exact same story. If not, why not? Yes, there will be discrepancies, but differentials should be small and easily explained and documented in notes. If discrepancies are wide, like the proverbial “Mack truck” wide, there is cause for concern and reason to require deeper due diligence to determine actual income.

Many government agencies require a certified rent roll as part of annual monitoring. For government programs the rent roll is delivered as an affidavit about collections. Presentation of an inaccurate rent roll can be considered a criminal act. Following is an example of a document required from an affordable housing program. The manager/owner is required to sign this document on an annual basis with delivery of the rent roll and financials.

“This rent roll is made, presented and delivered for the purpose of influencing an official action of the Department of Housing & Urban Development and may be relied upon as a true statement of the facts contained herein.”

In the case of affordable housing, the rent roll is utilized to assure that the correct rental amount is charged to the resident (resident

This article is an excerpt from the book How To Read A Rent Roll: A guide to understanding rental income by John Wilhoit, Jr.

Mr. Wilhoit is the author of two books: How To Read A Rent Roll: A Guide to Understanding Rental Income and Multifamily Insight Vol 1 - How to Acquire Wealth Through Buying the Right Multifamily Assets in the Right Markets. Multifamily Insight Vol 2 is set for release in 2015.

For 50+ hours of property management audio training, 3 books and live weekly leadership academy–surf to the PowerHour Property Management Books and Courses.

About This Blog: Multifamily Insight is dedicated to assisting current and future multifamily property owners, operators and investors in executing specific tasks that allow multifamily assets to operate at their highest level of efficiency. We discuss real world issues in multifamily property management and acquisitions. This blog is intended to be informational only and does not provide legal, financial or accounting advice. See www.multifamilyinsight.com

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