Buying a rent roll and merging it into an existing business is no easy task.

On the 1st of July 2009 we settled on a purchase of a rent roll of 900 properties.

A big job considering the business that we purchased had been under receivership for the proceeding 12 months.

Our biggest challenges were the existing staffing structure, rental payment methods, the bare minimum of service delivered during the proceeding 12 months, getting 900 new management agreeements signed and returned.

The existing staff had been in the business from anywhere from 12 months to the office manager for 10 years to one property manager 20 years. We felt that then length of service that the staff had provided would be crucial in retention & client relationships. How wrong were we. Of the 10 staff that came across, after nearly 12 months we only have 2 of the orginal 10 working in the business. One of the main challenges that we have found is that the staff had never been proformance managed before. By implementing our KPI's and weekly one on ones, it was identified by both sides that the right person was not in the right seat on the bus.

With the level of service that had been delivered before settlement, we thought one of the most important things to get into place was getting all the routine inspections up todate. With a number fo the properties not have even 1 routine inspection done in the proceeding 12 months. As soon as the routines were completed, it was amazing how much maintenance was required and you could only imagine some of the conversations with landlords, with them asking why all of a sudden there was all this maintenance that needed to be carried out.

With the business being in receivership, the receivers did not have understanding of the process of transferring all the agreements over. We worked out during our due dilegence process that there were a number of properties without listing authorities, other rent rolls that had been purchased in the proceeding 2 years that did not even have any files at all. We thought to get the best results of properties coming over was to get all new agreements signed. Merging all the agreements out of the software platform with the correct rents,fees,bank account details etc Usually the seller of the rent roll would take care of this side but the receivers did not know anything about it. So we put a team together to get them out( each agreement in QLD is 12 pages) then to chase them up and check each one as they came in & send back if they were not filled out correctly.

The previous business allowed direct deposit into their trust account as well as cash payment over the counter. We had not used these as a methods of rental payment for over 4 years and the legislation in QLD states that the agent has to offer the method of payment stipulated on the existing lease. We already had 2500 properties under management before the purchase with not one direct deposit into our trust account. We were forunate that we managed to get over 90% of the tenants onto our preferred rental payment method with other arrangements being made with the other tenants until their leases were up for renewal.

It has taken almost 12 months to get the business into a good shape and in alignement with the rest of our business. We certainly learnt a lot from this transaction. If given the opportunity to purchase a business like this again, we would do it, but we would approach the process in a different way.

That sounds like a huge nightmare Jason, but what a huge sense of satisfaction you must have 12 months on!

Margaret www.dmrealty.com.au

thanks for sharing Jason, what would you do differently?  These are the lesson we want to learn...  12 Months seems like a short amount of time given the work that was required.

Thanks for the details Jason, I have been in 3 different offices where we purchased a rent roll that required similar problems that you experienced, although on a much smaller scale (300 properties was the most) out of the 900 purchased what was your retention in the end?

Hey Emily,

One of the things that if we had our time over again, is we probably would have negotiated a better price. Saying that we were and are still happy with the price that we paid.

G'Day Beau,

Hope all is well with you. Initially, the sellers thought that there were 1120 properties. Once we did some tiding up to send out the PAMD's it was actually just over 1000 (a lot of properties that should have been made inactive) Getting all new PAMD's signed meant that any owner that was not happy with the service that they had been receiving elected to go to other companies. Also one other company that had sold their rent roll to the company that we purchased, began marketing to all their old owners even though they had a restriction of trade in place. So at the end of the day we ended up with just over 900 managements.

Brilliant effort with such a big number I am inspired!

We purchased a rent roll and the experience was, thankfully, the opposite of what Jason went through. 

Here are my tips for making a purchase worthwhile. 

--Reputation of the company selling the rent roll. Good vs Bad. Do you want to be associated with a company who has a poor reputation? Be prepared to walk away.

--Profitability/viability of the rent roll. Are you able to grow the value of the rent roll either through rent increases or increased management fees. 

--Do you have the confidence to vacate properties and seek new tenancies at market rent and therefore increase the profitability and net worth of the asset?

--Due diligence. Are all the properties being purchased actually accounted for? As Jason pointed out above there are plenty of agents who have inactive properties on their trust accounting system. What condition are the properties in? If in poor condition is it due to poor management or is it a case of owners unwilling to carry out maintenance/upkeep/upgrade? Where are the properties located ie are they in lower socio economic areas, in poor condition etc that could attract issues.

--Relationship between seller and purchaser. This is a critical factor and will directly affect the attrition factor. (Recently one sold here in Perth where the owners were not advised until they got the letter from the new Agent. As expected, this mis-management directly contributed to high attrition. It could have been avoided).

--Here in the west REIWA are preparing a simple document that has been approved by REBA to assign the management to the new Agent as opposed to attempting to get new management authorities signed. Getting new managements signed can be a nightmare, especially where the owner chooses not to sign the new authority. 

--Is the buyers office set up to take on a new rent roll ie space, staff, computer software etc? Has the office allowed for increased operating costs? It's not uncommon to hear of agents buying rent rolls only to discover they're not equipped to handle the increased workload. 

--We found it useful to stagger the settlement over a period of 12 months. This allowed for a more accurate calculation of slippage, although there are plenty of other ways to handle this. Fortunately for both us and the seller there was no attrition.

--Is the new rent roll in close proximity to the existing? ie. if not will operating costs increase ie fuel reimbursement to property managers or wear/tear/servicing/tyres on company vehicles. Will the proximity open up a new farming area rental/sales wise for the office?

--SWOT of the rent rent roll crucial.

I hope this is useful.