Along with the T-12, reviewing the rent roll is a great starting point at underwriting apartment investing opportunities. While information on the rent roll must be verified during due diligence, it makes for a great source of the following information.
Upcoming Vacancies
The rent roll should show the names of residents as well as their lease terms. Run your eyes down the column that shows the end date of the lease term to take notice of how many leases are coming to an end in the next 60-90 days. If your sponsorship team acquires that property, those would be your vacancies to fill. This information is perhaps not a deal breaker, but something to be prepare for.
Bad Debt
While you cannot get the perfect picture of bad debt from the rent roll, there is a column that shows the resident balances. If you notice a large frequency of high balances, this can be an indication of the property management team’s difficulty in collecting rents. This can be due to various reasons and during due diligence this will be something that your sponsor will need to understand.
Loss to Lease
As you review the rent roll, you will see the current rental rates for each resident. From your independent and preliminary research, you can compare those current rents to market rents for similar sized and condition properties in the area to understand and gauge loss to lease and the potential to raise rents closer to market levels in the future.
As passive investors it pays to know and understand the process that your sponsor uses to underwrite apartment investment opportunities. The more informed you are the lower risk of your investment and the better chances of success in your wealth-building journey.
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