How do you verify rent roll?

Question

Hello,

When reviewing a multifamily property and the current rent is listed how do you verify that the current tenants are actually paying their rent? Anyone can create a spreadsheet. I often hear about the rent roll but how do know its legit and is there any recourse if it turns out to be fake

Bjorn Ahlblad · Answer

@Brian Plajer for starters you can compare it to a bank statement. Do several months. You can also use Estoppel Certs.

Brian Plajer · Answer

Thanks guys!  I must have listened to over 400 podcasts and read many books and this is where I learn of the Estoppel certificate. Love these forums.

Percy N. · Answer

@Brian Plajer for larger multi-family, I recommend:

1. Do a physical lease audit where you review each lease document and cross-reference it with the rent toll.

2. As for a bank ledger or bank deposit report (most software packages like Realpage, Yardi and Resman will have these as standard reports). You could ask for bank statements to verify deposits, but I find some sellers are a little leary for that.

3. Ask for a "delinquency and pre-paid" report showing all the amounts owed and paid in advance.

4. If you have any folks on a housing benefits program, I would get an understanding of that as well.

Verifying the rent roll is an important step but just one of many steps in the DD process. If you message me your email address, I can send you a due diligence template we use.

Spencer Gray · Answer

You do a lease / file audit during your DD period in addition to a physical inspection of any many units as possible (ideally 100%). The rent roll is usually off by a little, even if it just unaccounted for pets.

Joshua McIntire · Answer

We have tenants sign an estoppel certificate and cross reference their estoppel, to their lease, and any rent increase notices.

Dylan Whitcher · Answer

@Brian Plajer you and me both when it comes to Estoppel!

Greg Kasmer · Answer

Brian - I would true up the rent roll with the last 12 and 24 months P&L provided by the seller. For a seller using software to manage the building/property they should easily be able to provide that information once in due diligence. Also, during due diligence you should be able to get the last few bank statements as well as the high level information from tax filings from the seller. If the revenues don't appear to match the expectations set by the rent roll I would definitely inquire. And, as mentioned by Bjorn I would get each of the tenants to sign an Estoppel Certificate which should confirm the rent they are paying as well as the security deposit they paid to the current seller. Good Luck!

Dylan Whitcher · Answer

Hey Brian! This is a great question. I am familiar with the process of commercial real estate where a CRM and management company is in place, usually receiving bank statements or deposit information from the bank through the online payment software. However, I am not familiar with smaller acquisitions. I am commenting to follow this thread in hopes of an answer! Have a great one!

Cameron Tope · Answer

Same! A general estoppel agreement helps clarify a lot of information - utilities, who owns appliances, rent, deposit, etc.

Toben B. · Answer

I did it by reading all the leases. I found some minor deposit amounts that were different but otherwise it was fine.

How do you verify rent roll?

Most Popular Reply