With the cooling of market conditions in Sydney and Melbourne, understanding where your rent roll fits in the market has never been more significant. The reliance on property management revenue to shore up slowing selling commissions is becoming omni present, with this trend continuing the in the months ahead.
With these changing conditions demand for our rent roll and agency valuations has increased significantly over the past three months. In fact, more agency owners have sought business valuations in the past three months than the previous nine months combined.
The existing method of valuing most rent rolls had become dated, rigid, is somewhat flawed and doesn’t necessarily reflect current market trends nor a modern approach to agency practice.
Typically, most rent roll valuations are based on adopting a multiplier applicable to the net annual management fees. In some cases, not all, a goodwill factor is applied to the profit the Property Management generates.
This method to high degree, rewards poorer yielding portfolios and management practices and works against agencies with higher yielding portfolios with robust management practices.
We introduced a system of rent roll and agency value based on a multiple matrix of ROI.
This has not only proved to be a boon for the better performing portfolios, it has the support of banks and accountants.
Case Study 1.
We recently valued a portfolio based on our multiple ROI rating system of circa $800,000. We achieved an 8% higher sale price for the seller than using the current system; a great outcome for all parties.
Case Study 2.
A recent low yielding portfolio was placed on the market with a high level of initial enquiry. Due to the lower performance of the portfolio, generating an Offer was proving difficult. We showed a client by using the ROI approach, instead of being fixated on the multiple, what the additional revenue would add to their business – a healthy 38% return.
Now more than ever, so as to ensure businesses maximise either their selling price or potential LVR, it’s critical businesses adopt a much greater emphasis and knowledge around how their rent rolls are valued.