1. BUY AND VALUE A RENT ROLL LEADERSHIP programme

2. TOPICS COVERED Buying vs Natural growth Due Diligence Choosing your buyer Method of appraising rent rolls Understanding multipliers Finance Contracts (clauses to protect purchase) Post purchase transition Rent roll analysis and calculator

3. It is worth doing a comparison of the two methods of growth as both methods have positives and negatives BUYING VS NATURAL GROWTH

4. NATURAL RENT ROLL GROWTH POSITIVES NEGATIVES You can control quality, location and fees of properties You can avoid bad landlords No inheritance of problems Slower growth Rent roll loses money for a period of time until numbers grow

5. BUYING A RENT ROLL POSITIVES NEGATIVES Your Increased size gives the business momentum Increases cash flow Irons out fluctuations of the sales department Eliminates a competitor from your local area Increases networks and database More opportunities for the sales department Landlord rejection Buying existing issues More often than not poorly run Integration issues

6. DUE DILIGENCE What are the average rents and management/letting fees? How recently were any of the above increased? QUESTIONS NEEDING TO BE ANSWERED

7. DUE DILIGENCE What Ancillary Fees does the seller charge? Postage, Bank transaction fees, Re-Letting Fees, Periodical Inspection Fees, Exit Fees Is there room to add or increase any of these fees? QUESTIONS NEEDING TO BE ANSWERED

8. DUE DILIGENCE Are all agency authorities/files up to scratch? If not, what potential risk does this pose? QUESTIONS NEEDING TO BE ANSWERED

9. DUE DILIGENCE What is the location and type of properties being managed? How does the Geographical spread, furnished/unfurnished, houses/units, old v new affect the return on the rent roll? QUESTIONS NEEDING TO BE ANSWERED

10. DUE DILIGENCE How many properties are owned by the vendor or affiliated with the vendor? How could this potentially impact you? QUESTIONS NEEDING TO BE ANSWERED

11. DUE DILIGENCE What is the ratio of Landlords to properties? Are there a lot of multiple property clients? What impact does this have on the value of the rent roll? QUESTIONS NEEDING TO BE ANSWERED

12. DUE DILIGENCE What is the current staffing structure? How many? Are they any good? Will they stay on? What do they cost? QUESTIONS NEEDING TO BE ANSWERED

13. DUE DILIGENCE Will the Vendor/key staff remain for a period of time after settlement? If they dont, what problems could this cause? QUESTIONS NEEDING TO BE ANSWERED

14. DUE DILIGENCE What property management software is being used? How easy will it be to integrate? QUESTIONS NEEDING TO BE ANSWERED

15. DUE DILIGENCE Are Landlords currently being provided with services that you cant or wont provide? What is your strategy for handling this? QUESTIONS NEEDING TO BE ANSWERED

16. DUE DILIGENCEQUESTIONS NEEDING TO BE ANSWERED Are landlords fees currently less than what you charge? What is your strategy for increasing fees whilst not losing properties?

17. DUE DILIGENCE What Rent Payment methods are used? Do you use a different method which will cause issues to introduce? QUESTIONS NEEDING TO BE ANSWERED

18. DUE DILIGENCE What percentage of properties are in rent arrears and how long have they been in arrears? How does this affect the value? QUESTIONS NEEDING TO BE ANSWERED

19. DUE DILIGENCE What are the number and length of vacancies? What problems are you taking on? QUESTIONS NEEDING TO BE ANSWERED

20. DUE DILIGENCE How long has the vendor been managing the rent roll? What impact can this have to you? QUESTIONS NEEDING TO BE ANSWERED

21. DUE DILIGENCE Has the vendor purchased any rent rolls previously? Does this pose any threat to you as Landlords do not traditionally like change? QUESTIONS NEEDING TO BE ANSWERED

22. DUE DILIGENCE What has been the net growth/loss in the rent roll over the last few years? What does this mean to you? QUESTIONS NEEDING TO BE ANSWERED

23. DUE DILIGENCE Has the trust account always been balanced? How do you protect yourself against a trust account that hasnt always balanced? QUESTIONS NEEDING TO BE ANSWERED

24. DUE DILIGENCEQUESTIONS NEEDING TO BE ANSWERED Are rental bonds held for each property? What problem does this pose if not?

25. DUE DILIGENCE Have regular inspections been carried out on each property? Was there an ingoing inspection carried out for the current tenant? If not, what problems can this cause down the track? QUESTIONS NEEDING TO BE ANSWERED

26. DUE DILIGENCE How many outstanding maintenance issues are there? Are you taking on major maintenance problems? QUESTIONS NEEDING TO BE ANSWERED

27. DUE DILIGENCEQUESTIONS NEEDING TO BE ANSWERED Are there tribunal hearing or insurance claims pending? How time consuming & costly will these be?

28. DUE DILIGENCE It is important to get answers to the previous questions so that; You know what you are getting into and To ascertain a fair market value for the rent roll

29. It is strongly advised that you or a senior property manager inspect the premises of the person selling the rent roll to validate all of the answers to the questions that you have been seeking. DUE DILIGENCE

30. CHOOSING YOUR BUYER Dont just sell to the person who offers the most money You should only sell to someone who is at least capable of looking after your clients to the end of the contract retention period Or you will lose more than you gained by taking a higher offer initially Avoid selling to someone with a bad reputation or who is known to offer poor service

31. The value of a rent roll is usually based on a formula which is a multiplier of the yearly management fee that each property brings into the business annually. Generally letting fees and ancillary fees dont come into the value of the rent roll as they are unpredictable. Occasionally a smaller multiple may be used for letting fees METHOD OF APPRAISING RENT ROLLS

32. A multiplier is simply the multiplication of the property management income not including letting and ancillary fees that a property brings in each year. Properties can be sold at different multipliers. WHAT IS A MULTIPLIER?

33. e.g. Property rents for $300 per week with a 9% management fee $300 per week x 52 weeks in a year =$15,600 (income to owner per year) $15,600 x 9% = $1404 (yearly income to Real estate office from the property) $1404 (yearly income) x multiple of 2 = $2808 (value of property as an asset to business) $1404 (yearly income) x multiple of 3 = $4212 HOW THE MULTIPLIER CAN AFFECT THE VALUE OF A PROPERTY

34. The multiple generally varies from 2 to 3 but in some cities it can be as high as 3.5 to 4 There are many things that can affect the multiplier as previously discussed under due diligence Supply and demand also has a considerable bearing on the multiple RENT ROLL MULTIPLIER

35. Location Multiplier Location Multiplier Sydney 3.2 - 4 Brisbane 2- 3 West Sydney 2.8 - 3.3 Gold Coast 2.5 Regional NSW 2.4 2.85 South Australia 2.8 3.1 Newcastle 3 plus Perth 2.35 2.95 Central Coast 2.5 2.85 Melbourne 2.8 3.5 RENT ROLL MULTIPLIERS (ACCORDING TO MACQUARIE BANK RESEARCH 2013)

36. MULTIPLIER A. x 3 Great management, long fixed term leases, no arrears, inspections reports thorough and detailed, maintenance excellent B. x 2.5 Standard management, generally in good condition but some maintenance and arrears issues C. x 2 Properties in poor locations, low rent values, vacancy, arrears and maintenance issues CHOOSING A MULTIPLIER

37. Banks will generally lend up to approximately 50/60% of the value of the rent roll without separate equity as security Banks will take into consideration the quality and location of the rent roll Your ability to service the loan is also taken into account. FINANCE

38. CONTRACTS NEED TO COVER THE FOLLOWING ISSUES A post sale restraint period. A retention of payment to the seller to cover loss of properties from the rent roll. A clause covering non payment to the seller for clients who refuse to be transferred over to you Detail of all the documentation to be handed over on settlement CONTRACT TO PURCHASE A RENT ROLL

39. Indemnity for future claims on the rental department. Warranties from the vendor How are rental properties which the seller owns privately, which are being sold with the rent roll to be dealt with? This is of particular concern if the seller wants to dispose of them somewhere in the near future. CONTRACT TO PURCHASE A RENT ROLL

40. Vacancies and arrears on settlement day Agreement over access to information prior to settlement A notification process to landlords and tenants Continuation of business in efficient and diligent manner If possible, permission to start transitioning management authorities before settlement CONTRACT TO PURCHASE A RENT ROLL

41. Incorrect information? GST should not be applicable as the rent roll should be sold as an on going concern What actually gets handed over, e.g. keys, security devices, landlord details, file history notes, maintenance reports, signed authorities, condition reports, pool safety and smoke alarm certificates, all Landlord and tenant correspondence, tenancy payment ledger and all original leases CONTRACT TO PURCHASE A RENT ROLL

42. Extremely critical stage Contact with landlord, both personal and written must happen immediately Understand that Landlords dont like change They didnt choose you initially First impression critical to build trust and loyalty Sell the benefits of what your firm can offer Have the previous owner involved in transition whenever possible TRANSITION POST PURCHASE

43. A joint communication plan for landlords and tenants Essential to get Landlords signed up on your authorities ASAP (preferably prior to settlement) Issues over a difference in fees between you and previous agent Some Landlords use this as an opportunity to exit from management as they werent happy and were looking for an excuse to leave TRANSITION POST PURCHASE

44. Set out how you normally communicate as it might be different from previous agent Find out Landlord expectations Discuss changes with staff as soon as contract unconditional Consider hiring some of the sellers staff to make sure management agreements stick Give reassurance to everyone TRANSITION POST PURCHASE

45. ASSESSING RENT ROLLS For a copy of a rent roll calculator contact Tony Morrison at tony.morrison@harcourts.com.au or on 0418 130

46. BUY AND VALUE A RENT ROLL LEADERSHIP programme