Rent Roll - Underwriting Question

Rent Roll - Underwriting Question

Member since 2019 · 2 posts · 0 votes

Hello,

I have been looking at T-12, rent rolls, etc for various properties for multifamily. One thing I did not understand on rent rolls in general is that there are unit types that are the same (same square ft), but charge separate rents (i.e. ranging from delta of $50-200 sometimes). I understand some are slightly better upgraded units that are noted which I understand, but sometimes they are $10-30 apart for the same unit). My question comes from underwriting purely. 

How do you classify it when you are underwriting a deal (meaning gross potential rents and subtracting the loss to leases and such)? I would think it would be cumbersome to list 5 Units A1 - $600, 6 Units - A1 - $610, 1 Unit A1 - $615 etc for each line item. Is there a more efficient way to go about it. 

I realize we have a T-12 and such, but when looking at the rent roll, I feel it does not make sense. Any advice? Thank you. 

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  • Greg ScottPro Member
    Rental Property Investor · SE Michigan · Member since 2014 · 4k+ posts · 6k+ votes
    7y

    Rick:

    A lot depends on how you have your spreadsheet set up and whether your focus is really backward looking (how did I do?) or forward looking (might this be a good buy?)

    Of course, GPR is really meaningless because Operating Income is really where you need to get to.  So, for me I don't spend a lot of time trying to create numerous quality-levels of each unit type.   I'd create only those that make sense.   

    For example, if I have a bunch of similar 2-BR units and half have been remodeled and half haven't, I would create two groups.  I'd take the highest rent in each for my GPR and then adjust my loss to lease so that it nets back out as my average rent for each category.  

    Then subtract vacancy, bad debt, down units, and add other income to get to Operating Income.

    Good luck

  • Member since 2019 · 2 posts · 0 votes
    7y

    I see, Greg. Thank you, I appreciate it. I was trying to wrap my head around it. 

  • Rental Property Investor · Braselton, GA · Member since 2013 · 119 posts · 36 votes
    7y

    If there are numerous units with varying rental amounts then we average out the rents based on each unit type (i.e. average 2br/1ba, 2br/1.5ba etc).  Then we would do as Greg suggested and adjust the loss to lease to accurately depict the actual rents collected.  Loss to lease is based on what we determine to be market rent for the property. Hope that helps.

  • John CasmonPro Member
    Cincinnati, OH · Member since 2013 · 1k+ posts · 1k+ votes
    7y

    I would compare the T12 to the rent roll and look for the inconsistencies and ask for clarity. In regards to your underwriting and the differences in rent for the same size unit, we've found certain units (e.g. 1st floor units or rear facing units) may be more desirable and command more in rent. In this case you could have four different unit types based on where the unit is located (1st floor, 2nd floor, front, back). We model out each if demand is different on these preferences. If we do not believe there is a difference in rental demand, we just use the average.

    We take loss to lease as a percentage of gross rents.

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