Analyzing Rent Rolls for Multifamily Properties

The rent roll is the heart of any multifamily property.  It is where every analysis begins and where most early mistakes are made.

Our first goal is to organize this data into unique floor plans and calculate the average rent per unit type.  This helps you estimate the potential gross rental revenue and identify how much rental upside exists at the subject property compared to market rents.

Example: 

Our example shows a snip of how a typical rent roll would look.  As you can see, once organized into a nice unit mix table, the subject property contains four different floor plans (a 1-bedroom/1-bathroom, a 2-bedroom/1-bathroom, a 2-bedroom/2-bathroom, and a 3-bedroom/2-bathroom).  The monthly potential gross rental revenue is $287,500, or $3,450,000 annually.

Here are a few things to keep in mind as you review the rent roll:

Vacant Units

Apply market rents to the vacant units to estimate potential gross rental revenue.  Then, we will apply a market vacancy factor (e.g. 5%) to arrive at the effective gross income (EGI).  This is the cleanest way to get an indication of in-place income for the direct capitalization approach.

Manager or Employee Units

For properties that contain 16 or more units in California, on-site management is required.  Larger properties may also employ additional staff such as maintenance or assistant managers.  If these employees are receiving free or reduced rent as part of compensation, apply market rents to those units and account for payroll costs separately in operating expenses.  This provides a clearer picture of the property’s operations.

Concessions

If the subject property offers concessions that are above market standard, we should consider if adjustments are necessary.  For example, let’s say a property was offering five months of free rent while the market typically offers one month.  This is a substantial difference.  If rent is $2,000/month on a one-year lease with five months free, the effective rent would be $1,167/month.

Understanding how to interpret a rent roll is critical.  It is the first step to any multifamily valuation, and if it’s inaccurate, every step that follows could be off.