Rent Roll

When considering purchasing a multi-family complex and reviewing the rent roll the seller provides you with how accurate will this be? Are the required by law to provide the rent roll 100% accurate or can they say that they have five extra tenants who in reality had their lease expire and moved out 6 months ago?

that’s a great question and I’ve thought about that too. I’m days away from making my first few offers and am really shooken up. I cant sleep, dread checking email, just scared to death.
My question would be like yours on the vacancy rate truthfullness and also are they legally bound to show the actual income and expenses?
Sorry, I know I shouldnt sound so pessimistic; this isn’t a job it’s a way of life. I need to be excited to have the opportunity to be part of such a rewarding venture. I’m just … Me… LOL

I believe sellers often provide you with possible future income as in if the complex is 100% occupied. I think to find out the actual current income you would have to calculate it for yourself when given then rent roll, providing like I was wondering before, that the rent roll is actually correct.

Fancy spreadsheets and executive summaries are meant to present the “potential” of an investment, but should rarely be relied on as accurate.

The easiest way to see how a property cash flows is to review all the active leases/rental agreements.


Scott Miller

The rent roll should be 100% accurate, otherwise it is just a pro forma.

If the seller refuses or does not provide a 100% accurate rent roll, then he’s not dealing in good faith.


Look at what he filed with his taxes for 2006. You better believe he will not claim one cent he did not receive and you better believe he will put every last expense he can to reduce his taxable income.

Rich makes a good point. There can be a huge difference between the rosy picture painted in a pro-forma vs what is filed in a tax return. Somewhere in between you will find reality. As for confirming the accuracy of a rent-roll, ask to see signed current leases to support the income numbers.

When I first started I was worried about vacancies. But the truth is if you find a great deal then there is a problem. Most of the time it is either one of two things. Either the property needs repairs or the tenants are horrible bastards. When I am buying I will take a vacant duplex over a full duplex any day of the week. When you buy a vacant property then you can control who goes into the property and you control the rent charged.

So if the owner says it is full, but then you find out that one unit is vacant than that is a good thing. Get an ad in the paper for what you want the rent to be and be very picky on your tenant screening. That way you will know at least one tenant will probably be good.

In my bid I put that the bid is continguient on the rent being accurate on the MLS. One time I went through a property during the final inspection and the tenant told me what their rent was. I called the Realtor and told them I am backing out the agreement because they lied about the rent amounts. The seller dropped his price $3,000, I then went forward and bought it. A couple of months later I evicted the tenant and raised the rent to where the lier said it was. So I benefited $3,000 from the lieing seller and the rent is where it should be at.

Tax returns are a good secondary source of information for cash flow, but I would take the operating expense statements to Uncle Sam with a grain of salt…

Good CPAs have a knack for making the numbers look a certain way on April 15th…


Scott Miller

Definitely compare rent roll with the current leases. Make sure you inspect each unit to see if it is really occupied. You should question everything the seller presents you with.

In some cases bank forces the seller to sign the submitted operating statement and rent roll. I am not sure if you would be able to collect a penny from a lying seller once the transaction is close.

Also as you inspect each unit pay attention to the tenant and how the place is set up. If it is nice and clean chances are the tenant will be more responsible than a tenant who has a messy appartment.

Be careful, but do not be affraid.

I personally don’t like to look at the proforma because that is simply based on the theory that the new owner will raise the rents to market level. I like looking at what i call, “The Right Now!” numbers :smile
Or, otherwise known as EGI.

JEMC I thought the rent roll was the right now numbers. I was trying to figure out how to see how accurate and truthful the right now numbers really are. A couple other members have posted some good ideas on how to approach this. Thanks!

I find that owners a pretty accurate and honest when they provide the rent rolls. Not because they necessarily want to but because they can be easily be verified when you are under contract. When they provide all the lease agreements to you and they don’t match up then it could break the deal. The numbers you really need to scrutinize is the expenses…they love to fudge these.


Everyone has made many good points here. What ever the documents are you get up front, use them to only evaluate the deal at hand. If the numbers look good, then you move to the next step of doing your own due diligance. That is were you varify for yourself everything that was presented to you. Get copies of leases, visit the property personally and varify that units are occupied, ask for audited financial statements from the sellers CPA, etc. If you get to the point of ordering an appraisal, you can also rely on the information the appraiser gathers. Pick your own appraiser, or the Lender you use will pick them. Don’t allow the seller to pick them.

ANother great method… have your friend, wife, hubby, etc to pretend to be a potential tenant. Ask for the rent price.

Badabing. Badaboom.

When you make an offer on a Multi Housing property, the owner should provide all books and records including rent roll. It should be in your contingencies prior to removal. Never close a deal w/o having proof of checks or receipts. Owners will boost the income from rents and minimize expenses as much as possible to increase cap rates and grm’s to make the deal look attractive.
I’ve had many owners claim much higher rents…and then the rent roll and leases prove otherwise. When dealing with Investment properties it’s a wise investment to use a lawyer or Investment Specialist with a credible firm.

You should ask to see the current/actual rent rolls. They may give you a proforma that shows potential market rent on each unit, but you should make sure you see the current rents collected on each unit, deposits held, expiry date of lease. You want to see the actual transaction detail for the past 6 -12 month of rent charged vs collected with dates of transactions to see if they have filled the building up with slow / no pay tenants or have abatement credits against the actual rents. Always get a due diligence period in the contract with right of termination and then don’t delay in getting the work done. You can hire a apartment specialist that will due the diligence inspection for you, which for the new to the business is a very good step in learning what to look for. It’s not cheap, but good advice is not an expense, it’s an investment. One way or the other you’re going to pay for it and its better to do it up front when you can renegotiate the price if warranted or walk from the deal.