Should you buy a rent roll in an Insolvency Event?
- Don’t assume everyone will think it’s a bargain – Everyone is after a bargain when a rent roll or agency is in an insolvency event. Be bold with your pricing but don’t think it’s only worth 1 times or 1.5 times. The first stage of a sale is about short lists, and price will be a big factor. Bigger the better.
- Who has made the appointment? – If it’s bank appointed then the motivation to achieve a much higher price will be stronger. If it’s a voluntary appointment then most often the business is in risk of trading insolvent, therefore the insolvency practitioner maybe looking for a quicker result with fear of landlords exiting.
- What will the Insolvency Practitioner look for? – Capability of the agency or purchaser as well as price is very important, as the purchaser will need to roll up their sleeves and get dirty with lots of hard work. So be prepared to prove you have the team and experience to take over managing the rent roll. The appointed firm wants to get in and get out
- Opportunity – Possibly landlords have had poor service whilst their property has been managed by the outgoing agency. This is a great opportunity to deliver good service and improve commissions and fees for the long term.
- Take on the challenge – Hard work will reward in a growing asset which will be worth a lot more than what you’ve paid for in the long run.
Lastly, when considering purchasing a distressed rent roll make sure you conduct proper due diligence. Please check the following;
- bonds – if bonds are missing then they will be protected by Fair Trading as long as a receipt was issued. It’ll again require some time and effort rectifying what’s missing
- ingoing reports – make sure there is one for each property file. If there isn’t then make sure your team is prepared for lots of inspections when you take possession
- existing lease
- proper tenancy applications
- when was the last rent increase? – has this rent roll been keeping up with the market? If not then this is a plus as your landlord will appreciate the uplift
- when was the last routine inspection done?