A rent roll can be a critical document that may seal the deal when trying to secure a loan for a property. Lenders and banks will use the rent roll to assess the risk factor of the reported property. The cash flow and risk profile of the profile are influencing components of the loan terms and amounts. The lender will want to see how you will be able to pay back the loan and the rent roll can provide proof that you have a sufficient flow of cash.

We have a post specifically answering ‘What is a Rent Roll?’ but we will just give a brief summary for reference to how it can be used to secure a property loan.

What is a Rent Roll?

A rent roll is a report that provides a detailed overview of a property’s financial income along with tenant and lease information. The report is a reflection of the property’s performance with a full history of lease terms, payments, occupancy rates and tenant turnover.

What lenders use a rent roll for?

Evidence of reliable and stable income

If you want to borrow some the money the lender will want assurance that the property generates enough income to repay the loan. Evidence of strong rental history will show a steady stream of income and demonstrate:
– Consistent rent collection.
– Reliable, long term tenants.
– Low vacancy rates.

Debt-Service Coverage Ratio (DSCR) Calculation

A DSCR can be used as a method of determining whether a property has the ability to service its debt. It measures the risk by comparing the income with the annual debt service.

The DSCR is useful for both lenders and borrowers as the result can highlight how much buffer the cash flow has before risk of defaulting on repayments.

A ratio of 1.25x or above is generally recognised at the minimum ratio for lenders. A ratio of 1.25 would mean the property can underperform by 25% before its income becomes insufficient to cover the debt.

Occupancy & Tenant Turnover

Low occupancy rates are considered red flags for lenders and will increase their perspective risk of the property. A rent roll that show long term tenancies with low tenant turnover are positive indicators for reliable income.

If a property has a low occupancy or high turnover it doesn’t necessarily mean the property cant generate enough income. Many properties effected by seasonal changes can use rent rolls to show they consistently make enough during the busy periods to cover the more quite times.

Support for property value

Lenders employ various financial calculations to determine the value and return on investment for a property. A common set of calculations are :
(GRM) Gross Rent Multiplier. GRM calculates the property value based on the rental income. GRM can be calculated two different ways. One using the purchase price and the other with the current market value. The formula is the same.
Purchase Price / Yearly Gross Rent = GRM or Market Value / Yearly Gross Rent = GRM

(Cap Rate) Capitalization Rate calculates the potential return on investment.
(Net Operating Income / Market Value) * 100 = Cap Rate (%)
It is also possible to use the purchase price in the cap rate formula. Using the purchase price isn’t very popular as the result can be misleading if the property is old and the purchase price was low. Also its important to use Cap Rate as a guide to compare with other similar properties in the area.

How our Rent Roll Software Can Help With Loan Approvals

Improves Accuracy
Using Rent Roll improves accuracy and reduces errors by minimising manual inputs. Rent Roll automates key and mundane processes while still providing control and oversight at critical stages. Rent Roll automatically formats invoices with dates relevant to the charge period, making it clear to tenants and landlords which period the invoice is associated with. Lenders like to see highly efficient businesses and having accurate data is a reflection of good business practices.

Reduce Late Payment
Having numerous late payments can be a red flag for lenders and may be enough to block applications if they are too severe. Rent Roll optimises the process of invoicing and rent collection, making it more straightforward and effective. An efficient invoicing system is the first step to reducing the chance of rent arrears and strengthening cash flow. Rent Roll’s integration with GoCardless further enhances rent collection by streamlining the process and making payments more accessible.

Clear and Comprehensive Reports
Lenders will want to see a complete history of lease terms, payments, occupancy rates and tenant turnover to evaluate your property’s performance. Rent Roll provides all the necessary information and will keep it updated and accurate, ensuring you always have the required information prepared. There will be no need to spend days assembling information, the reports are all ready to go with a click of a button.