How to analyze a rent roll before you buy an apartment complex

What a rent roll shows

A rent roll is a table with one row per unit, dated on a given day. The columns vary by property management software, but a useful one has:

• Unit number, floor plan or unit type, bedrooms, bathrooms and square feet
• Status: occupied, vacant, down (cannot be rented), model or employee unit
• Lease rent, the rent the resident actually signed for
• Market rent, what the manager thinks the unit would rent for today
• Lease start and end dates, and the move-in date
• Security deposit, and often the balance the resident owes

Ask for the rent roll in its original format, such as the spreadsheet or report printed from the software, not a summary typed for the sale. Ask for a recent one, and for one from a few months earlier, so you can see what changed.

Step 1: make sure every unit is there

Count the rows. The number must match the property: the offering memo, the tax records and what you count on site. Then check the floor plans. If the memo lists more one-bedroom units than the rent roll does, find out where the others went. Missing rows are often down units, or units used for storage or an office, and they still cost money.

The totals on the last page should add up from the rows. Add them yourself in a spreadsheet. A total that does not match its rows is a reason to ask for the export straight from the software.

Step 2: compare lease rent with market rent

The gap between what residents pay and what the units could rent for is called loss to lease. A large gap can be your upside. It can also mean the market rent column is wishful, so check market rents yourself against listings of similar units nearby.

Example four one-bedroom units. All numbers are made up to show the arithmetic.

In this example the three leased units pay $3,000 a month, an average of $1,000 each. At market they would pay $3,150, so the loss to lease is $150 a month, or $1,800 a year. Gross potential rent, every unit at market, is $4,200 a month, and physical occupancy is 75%. The vacant unit adds nothing to income until it is leased, and maybe not until it is repaired.

Step 3: look hard at vacant, down and model units

A vacant unit is ready to rent. A down unit is not: it may have water damage, missing fixtures or systems that do not work. Some rent rolls show down units as vacant, which makes them look one lease away from income. Write down every unit that is not occupied, and walk every one of them. They show you what the worst units cost to fix.

Model and employee units pay little or no rent. Decide whether you will keep them. If not, count them as rentable in your plan only after the cost of turning them.

Step 4: read the lease dates

• Many leases ending in the same few months means many move-outs at once, and lost rent while you turn the units.
• Many month-to-month residents gives you flexibility, and also risk if they leave.
• A run of new leases in the months before the sale, at higher rents or with move-in specials, may be a push to make the income look stronger than it will stay.
• Long leases far below market limit how fast income can rise.

Step 5: rent charged is not rent collected

A rent roll shows what residents owe, not what they paid. Ask for the delinquency report (who owes and how much) and a list of concessions such as a free month. Residents far behind may never pay. Free months reduce real income even when the lease rent looks full. If the seller will share bank statements, compare what was charged with what was deposited.

Step 6: tie the rent roll to the T-12

The T-12 is the operating statement for the last twelve months. Take the rent roll's total monthly lease rent and compare it with the rent in the latest month of the T-12. They will not match exactly, because of timing, concessions and delinquency, but they should be close. If they are far apart, one of them is not current, or the rent roll counts rent that is not being collected. Ask the seller to explain the gap before you build an offer on either number.

Once the numbers agree, carry them into your income and work out your maximum offer from there.

Step 7: check it against the walk

Walk with the rent roll in hand. A unit listed as occupied that is empty, a unit listed as vacant that cannot be rented, or a floor plan that does not match what you see are all things to raise with the seller. The unit walk checklist covers what to look for in each unit, and the due diligence checklist lists the other documents to request.

Red flags

• The unit count does not match the memo or the site.
• Market rents are well above what similar units nearby are listed for.
• Rents rose sharply on recent leases only.
• The rent roll and the T-12 disagree by more than a small amount.
• The seller will not share the delinquency report or the original software export.

How DoorWalk helps

Paste a rent roll when you add a property and DoorWalk sets up the unit list for the walk. Upload the rent roll as a PDF, spreadsheet, CSV or photo and DoorWalk reads each unit row, then suggests the average lease rent and the number of empty units for each floor plan, each with the page or cell it came from. Nothing goes into your deal until you confirm it. With a T-12 uploaded too, DoorWalk compares the rent roll with the latest month of rent and tells you when they are more than 5% apart, so you can check which one is current.