2 Rent Roll Due Diligence Checks for Passive Investors to Verify Before Investing?
This trick is more for multifamily where your rent roll will be a bit more extensive, if you’re investing in strip centers or retail centers you may just have a few tenants on your rent roll and you don’t have as much move ins and outs so this may not work.
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But, if you’re looking at a multifamily rent roll, many times sellers or brokers will advertise a “proven” value add strategy by using the highest lease amount achieved for a certain layout.
For example, if a 50 unit building is renting 1 bedrooms at $500 but they got 1 lease at $600, they might advertise that $600 is the market rate for all 1 bedrooms which can result in a significantly higher valuation.
And that might be true, but you’ll want to do these 2 really quick checks first.
1: Look at the most recent leases since that increased lease amount
Is it a trend that the new leases have been higher or at $600? Or was it a one off $600 lease and the rest are coming in at $500? That could be a sign that the $600 was a one off and not as realistic for you to lease every unit at that price.
2: Check if that $600 lease came with any concessions
Sometimes you can check on these by visiting sites like apartments.com and you can see any move-in specials they have, or you can just ask the question.
If that new $600 lease included a free month concession, that may not truly bring the market rate up to $600 a month. It actually brings it to about $550 because you can deduct the cost of the free month from the annual amount of that 12 month lease.
Concessions are not a bad thing, we have concessions on a few of our properties currently, but you need to understand the full scope of how new rental rates are being projected and if a proven value add strategy is truly that or if you’ll have trouble duplicating those results through regular marketing