Homeowners are used to buying houses based on the price-per-square-foot, but real estate investors have to think a little bit differently. That’s because when investors are really buying is the potential cash flow that the property generates.
A rent roll is used by sellers to help increase property value, by buyers to identify the best potential investments, and by lenders to determine whether or not to make a rental property loan.
What is a Rent Roll?
A rent roll is a consolidated report that tells you at a glance who the tenants are, which tenants have paid their rent, how much, and when the last rent payment was received.
Additional information on a rent roll includes whether or not a unit or home is occupied (important for multifamily investors or single-family home investors with a large portfolio of rental properties), tenant occupancy length and lease expiration date, tenant payment history, and amount of refundable security deposit.
Rent rolls can be created for any type of income-producing property – such as a single-family home, a multifamily property, or a short-term rental – and as a consolidated rent roll report for a group of rental properties at the portfolio level.
Benefits of Having a Rent Roll
Real estate investors interact with property managers, lenders, local tax collection agencies, and prospective buyers when the time comes to sell. Each party uses the rent roll report to see the current rental income a property is generating, and to help understand whether the current rental income might increase or decrease:
Buy-and-hold real estate investors purchase rental property for the cash flow generated, along with potential appreciation in property value over the long term and tax deductions and benefits.
The rent roll helps owners and investors maximize cash flow by showing if a tenant is past due on the rent and a late fee should be assessed. If a tenant has a history of paying the rent late, it may be an early warning sign that it’s time to start looking for a new tenant. Pre-marketing the unit for lease can help minimize vacancy time and keep rental income cash flow steady.
A rent roll will also show which leases are coming up for renewal in the next few months so that the tenant can be signed to a new lease well before the expiration date. Lease renewals are also the window of opportunity for raising rents to market, and a rent roll will show at a glance the current rent being paid and whether there is the opportunity to grow cash flow by increasing the rent.
A good property manager uses the rent roll in many of the same ways that an owner does.
Remote real estate investors hire a local property manager to handle the day-to-day details of rental property ownership, such as rent collection, tenant communications, and making sure the property is well maintained to help value increase over the long term.
By looking at the rent roll, a property manager can see if the rent is being paid in full and on time, whether a late notice should be sent to the tenant to prepare for a possible eviction, and how much of a security deposit is held.
Knowing the security deposit amount is important when conducting a routine property inspection. If there is damage caused by the tenant beyond normal wear and tear, the property manager knows if there are sufficient funds to make any needed repairs to keep the property in a habitable condition.
Buyers also benefit from an accurate and up-to-date rent roll. When a rent roll is properly prepared, it is easier for a buyer to predict if the future rental income will stay the same based on the past and current payment history of the tenants.
For example, if rent collections have been steadily decreasing over time, it may be a sign that the property is mismanaged or fundamentals in the local rental market are changing. Loss of a major employer or population decline can both have a negative impact on the demand for rental property in a local market.
Buyers can also use the rent roll when conducting their due diligence and analyzing possible rental property investments. By comparing the rent roll to the profit and loss statement (P&L) provided by the seller, buyers can tell if the P&L is accurate.
The rent roll will also help the buyer answer important questions such as:
- Could the gross rental income increase, decrease, or remain unchanged?
- How long has each tenant rented the home (i.e., is the tenant “seasoned”)?
- If the tenant has rented for more than one year, can the lease be extended again prior to the close of escrow?
- Are there opportunities for increasing the gross rent collected, such as increasing the rent to market or charging additional rent for pets or roommates?
Lenders use the rent roll to help calculate the debt service coverage ratio (DSCR) when a borrower applies for a rental property loan or when the current owner wants to refinance. The DSCR tells the lender how much additional cash is left over after the operating expenses and mortgage payments have been paid.
DSCR is calculated by dividing the net operating income (NOI) by the mortgage debt service payment. A lender determines the NOI by taking the gross rental income reported on the rent roll and subtracting the property operating expenses reported on the income statement.
Most lenders look for a DSCR of at least 1.25 on a rental property loan. If the annual NOI from a property is $5,500 and the annual debt service is $4,000 the DSCR would be 1.375:
- DSCR = NOI / Debt payments
- $5,500 NOI / $4,000 debt payments = 1.375
In many cities, a real estate investor is responsible for collecting a use or rental tax from the tenant, similar to the way a sales tax works. For example, if the rental tax rate is 2% and the tenant’s rent is $1,200 per month, the rental tax amount to collect would be $24.
Landlords are responsible for collecting the rental tax and remitting the payment to the local department of revenue along with a rental tax return. If an audit is ever conducted, the local tax collection agency may refer to the rent roll to verify that the rental tax has been collected and paid as required.
How to Create a Rent Roll
Real estate investors can create a simple rent roll using spreadsheet software programs such as Google Sheets, Microsoft Excel, OpenOffice Calc, or LibreOffice Calc. The exact information on a rent roll can vary based on the type of property and the objectives of the user, but generally contains the following information:
Allows the rent roll user to quickly contact the owner or property manager with any questions:
- Owner name
- Property name/address
- Property type
- Property manager
The rent roll should contain individual rows to enter the following information for a single-family or individual units in a multifamily property:
- Unit number
- Size (in square feet)
- Tenant Name
- Monthly Rent
- Rent Collected
- Late Fees
- Additional Rent (pets, roommates, parking)
- Security Deposit
- Lease Start Date
- Lease End Date
- Lease Length
- Renewal Options
- Annual Increases (current tenant)
- Occupancy Length (length of time tenant has continually rented)
- Additional Unit Information (schedule updating, pet friendly)
- Additional Tenant Information (special requests, personal property in unit)
Contains the total gross rent collected by month and by year for each tenant and for the property as a whole:
- Total Monthly Rent Collected
- Annual Rent Collected
Example of a Rent Roll
A Roofstock customer put together a sample rent roll for three single-family homes in Charlotte, North Carolina.
As the rent roll indicates, one tenant is on a month-to-month lease, the second tenant is new, and the third tenant is “seasoned” and has rented for 2 years. Additional rental income reported on the rent roll includes a late fee, monthly pet rent, and additional monthly rent for roommates:
Get a Free Downloadable Rent Roll Template
To save you the time and trouble of creating your own rent roll, we’ve put together two full-editable rent roll templates that you can customize for your specific needs:
Other Sources for a Free Rent Roll Template
If you prefer to look at other options for a free rent roll template here are some good online resources to consider:
- Sample Forms offers over 11 sample rent roll templates in Excel, Word, and PDF formats.
- Find Word Templates has free rent roll templates used by major lenders including Wells Fargo, Chase, and Golden State Bank.
- Template Archives provides 47 rent roll templates and other important forms for real estate investors to use.
An easier way to generate your rent rolls: Current Stessa users can use the Rent Roll reports to confidentially share leasing information with business partners, lenders, and anyone else. If you’re not a Stessa user already, you can sign up for free here.
Once you’ve set up your Leases & Tenants page to reflect the current status of each property, run a Rent Roll Report to generate a clean one-page summary that you can use to double-check your data and share it with anyone.
If you’re not using Stessa yet, go here to create a free account.
4 Ways to Grow Your Rent Roll
The main reason for owning rental property is for the rental income generated. So, the more you can grow your rent roll the bigger the gross rental income will be and the larger your potential profits.
Buyers aim to grow a rent roll after escrow closes to increase the value of their investment, while sellers seek to grow a rent roll to help increase the property sales price.
Here are four good ways to grow your rent roll and potentially increase your property value:
- Research: Forward-looking market trends over the next 5-10 years can favor landlords or tenants. Historical rent growth, increase in renter-occupied households, job and population growth, and housing costs can all affect the demand for rental property.
- Market rent: Running rent comparables and preparing a rental market analysis can help you determine the fair market rent and indicate if there is room to generate more rental income from your existing tenants. If you’re looking for a new tenant, knowing the fair market rent can help attract the most qualified tenants as quickly as possible on free rental listing websites.
- Cash flow: Accepting rent payments online can help keep cash flow strong and steady and decrease tenant turnover, especially with younger tenants who are used to doing almost everything online. Tenant screening services to conduct complete background checks and free property management software helps to find the most qualified tenants and process maintenance requests quickly and easily.
- Property manager: A good property manager is an essential part of every investor’s real estate team. Successful rental property investors hire a local property manager to handle the daily details of running a property and build lasting relationships with tenants who can’t wait to renew their lease.