How Is Rent Roll Value Calculated?

In conversations with many real estate agency Principals, I've been surprised just how many have a "back of the napkin" understanding of what their rent roll value is worth. I've heard comments such as "It's the number of properties x $4000" or "I know the multiplier is usually 3".

In this post we'll tell you how rent roll value is calculated, and how you can work our rent roll value yourself (prior to engaging a broker or valuer for an accurate appraisal).

​The Formula For Rent Roll Value Calculation

​So here it is, the formula to calculate the value of a rent roll:

Number of properties managed x average weekly rent x average management fee (excluding GST) x 52.1429 (i.e. the number of weeks in a year) x sale multiplier

An Example Rent Roll Value Calculation

Let's run an example. Let's say ABC Real Estate agency has a rent roll comprised of the following:

• 250 properties under management

• Average weekly rent of $520 per week across the whole portfolio

• Average management fee across the whole portfolio of 6.00% (excluding GST), which could also be written as 0.06

1. First We Work Out Annual Average Management Income (AAMI)

We first get the Annual Average Management Income (AAMI) for the agency, by using the above figures and multiplying them by the number of weeks in a year (52.1429). So, we would calculate:

AAMI = 250 x $520 x 0.06 x 52.1429

= $406,714.62

2. Multiply AAMI by the Multiplier to get Rent Roll Value

Now there's just one final step, which is to multiply the AAMI figure by the sale multiplier. A common misconception is that the multiplier is always "around 3". While 3 may be able to be used as an indicative multiplier, the reality is this figure can vary significantly from in the 2s to high 3s, which has a big impact on the final rent roll value.

Just some of the factors which can vary the multiplier are:

• Number of properties under management

• Number of active properties

• Vacancy rates

• Management fees

• Weekly rent

• Geographical spread of properties

• Type of properties

• Landlord to property ratio

• Legislative compliance

• Duration of rent roll operation

• Arrears status

• Additional agency revenue

• Supply and demand

• Current tribunal cases

• Staff and wages

• Population and demographic trends

• Broader economic conditions

A rent roll broker or valuer should be engaged to accurately determine the multiplier as relevant for your rent roll.

Let's say in our example, ABC Real Estate has engaged a broker or valuer and it was determined their multiplier should be 3.

The final rent roll value for ABC Real Estate this this case would be:

AAMI ($406,714.62 as we calculated above) x 3

Rent roll value = $1,220,143.86

​How To Maximise Rent Roll Value For Your Agency

​In addition to making the rent roll calculation easy, we have developed a tool which let's you play with your numbers via a series of interactive sliders, to see in real-time what the impact would be in your rent roll value if you made some changes.

In essence, you can work out - based on what's most likely / achievable for you - what your rent roll COULD be worth.

For example:

• What would the rent roll value be if you added another 50 properties under management?

• What if average weekly rent was increased $20?

• What if you increased management fees?

We even show you how many properties you could afford to lose through a management fee increase, before your revenue and rent roll value goes down!

Interested? Learn all about the rent roll calculator and check our flexible pricing plans here.

And as always, if you have any questions contact us anytime.

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