Rent Roll Finance

Find out more about rent roll finance and compare your commercial loan options with Savvy today.

Last updated on June 16th, 2022 at 04:05 pm by Thomas Perrotta

Rent roll finance explained

A rent roll is a term used in the real estate industry in relation to large rental properties, but what exactly is rent roll finance? Is it possible to buy a rent roll and what finance can I get to help the process? Explore the world of rent roll lending and borrowing money to purchase an active rent roll, as well as a range of other loan offers, with Savvy.

What is rent roll finance?

Rent roll finance is a special kind of loan that helps you purchase a property which still has current tenants in it. A rent roll is a kind of document used in the real estate industry that represents a property (or group of properties) and the various tenants associated with it. Effectively, it allows you to discuss a rental property as an asset – with costs and returns associated with it. The term rent roll might be used to refer to a specific property or a range of rental properties owned by the same business or individual and, just like any asset, it can be bought, sold and even used as collateral.

If you find yourself in the situation of wanting to buy such an asset – buying not just the property, but the management of the current tenants as well – that’s when rent roll finance comes in. It’s custom built to provide the funds to purchase a rent roll, and lenders that offer it already familiar with the oddities of such an unusual type of asset, and how the appraisals work.

How does rent roll finance work?

When you purchase a rent roll that’s for sale, you’re taking on all the benefits and responsibilities of managing the property and all the tenants associated with it. Effectively, you’re purchasing a portion of a real estate business. It’s a big process and there’s plenty involved with such a purchase.

Rent roll purchases can involve very large numbers, with some rental properties worth millions of dollars. Provided you have significant security to offer, rent roll finance can allow you to borrow a large proportion of that money, which can then be progressively repaid with the income from the rent roll.

If you have a particularly large asset available as security – something worth considerably more than the rent roll that’s for sale – you might even be able to borrow all the money needed for the purchase. However, there might still be a small establishment fee involved. This is different to how a business loan works, as these are more flexible in terms of how they can be used.

What is borrowing against your rent roll?

In some cases, the term “rent roll finance” can also be used to refer to borrowing money against your rent roll. In this scenario, the rent roll is being used as an asset which you’re offering as collateral on a loan.

This is often regarded as a sensible way to use your rent roll as an asset, as you gain considerable financial benefit from doing so – more lending power, and generally better interest rates – without the need to put anything up for sale. The flip side of using anything as collateral is the small chance that if something goes very wrong with the loan, ownership of the rent roll can pass to your lender, and it can be sold to cover the debt – although it’s very rare that this would actually happen.

It is possible to use both forms of rent roll finance – it’s not uncommon to use a rent roll as security on the same loan used to purchase it as you might do with a household mortgage – but, in these cases, you generally can’t borrow the entire value of the rent roll.

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Frequently asked questions about rent roll finance

Is it worth getting professional help for purchasing a rent roll with loan finance?

Yes – there are professionals that can help with finding a suitable rent roll for sale, a professional appraisal, rent roll financing and helping to manage the rent roll and the transition process. Unless you’re extremely well versed in the world of real estate, it’s probably a good idea to seek help for some of these things. With responsibilities to tenants and landlords in play as well as large amounts of money and many legal requirements, a commercial finance broker is one of your potential options for navigating the process.

Are there minimum borrowing amounts for rent roll finance?

Yes – and rent roll finance does tend to have quite significant minimum amounts, sometimes starting in excess on $200,000. However, if you only need a smaller amount (perhaps you already have the majority of the funds available from a separate property sale) there’s nothing to stop you from getting a conventional business loan and using that to supplement a rent roll purchase. Savvy is an awesome place to start the hunt for a business loan, as you can quickly compare loans from some of Australia’s top lenders and find a finance option suited to your situation.

How quickly do I need to repay rent roll finance?

Exact loan terms for rent roll finance varies from lender to lender, but they tend towards medium length loan terms – ten years wouldn’t be an unusual figure for a rent roll loan term.

Are there requirements for my business if I want to access rent roll finance?

Yes – standards are different between lenders, but it’s not unusual for your business to need a minimum of three years of property management experience and a current real estate licence (you are effectively buying a real estate business). You’ll generally also need a detailed business plan for the rent roll, financial records for your business, your own financial records and generally a clean slate with the ATO – lenders will normally want to see a good history with ATO payments, and no current tax arrears.

Are there landlords included with a rent roll purchase?

Yes – often in addition to tenants, a rent roll will have landlords that manage that property. There are many relationships involved in a rent roll transfer and the funds generated by the property can take a big dip if landlords and/or tenants end up leaving.

Can I use one rent roll as security to purchase another?

Yes – and if the rent roll being used as collateral is a fair bit larger, it can give you more lending power. This can potentially allow you to borrow the full amount to purchase the smaller rent roll.

If my business is purchasing a rent roll, does my own financial position come in to play?

It does. Generally, a business lender considering a loan application will consider the financial details of not only the business itself, but also the directors of that business. So yes, your financials and credit history will come into consideration (as well as that of any other directors), and anything negative could have an effect on your application. On the positive side though, if all directors have spotless financial histories and good credit, this can be a very positive thing.