Building a rent roll you can trust

A rent roll lists units, tenants, rents, lease dates and deposits. It looks like data. It is, until verified, a set of assertions by a person who wants you to pay more.

What sellers do to a rent roll

Not necessarily dishonestly. Some of this is optimism, some is sloppy record-keeping, and some is deliberate.

Rents that are contracted but not collected. A unit shows $1,600. The tenant has paid $1,600 twice in the last eight months.

Concessions omitted. The lease says $1,600 with two months free, which is an effective rent of about $1,330 over a twelve-month term. The rent roll shows $1,600.

Related-party or short-term tenancies. A unit occupied by a friend of the owner on a lease signed at above-market rent shortly before listing, which will not renew.

Units listed as occupied that are not, or occupied by someone without a lease.

Deposits shown as held that are not segregated, which becomes your liability at closing.

Month-to-month tenancies presented as stable. Legally they can leave with short notice.

The verification sequence

Read every lease. All of them, not a sample. Check that the rent, the term, the deposit and the parties match the rent roll. Note any unusual provisions — rent caps, renewal options, maintenance obligations, pet agreements, parking, storage.

Get twelve months of bank statements or a general ledger, and match actual deposits to the claimed rent roll month by month.

This single step catches most misrepresentation. Contracted rent is a claim; deposited cash is a fact.

Request a delinquency report, and look at the trend rather than the current figure. A property with recurring delinquency in the same units has a tenant quality problem that survives the sale.

Obtain estoppel certificates. A signed statement from each tenant confirming their rent, deposit, lease term and that there are no outstanding disputes or landlord obligations.

This is standard on commercial transactions and underused on small residential. It converts the seller's claim into the tenant's confirmation, and it surfaces side agreements the seller never mentioned.

Verify deposits, both the amount and where they are held. Many jurisdictions require segregated accounts and interest. You inherit the obligation.

Walk every unit. Not a sample. Occupancy, condition, unauthorized occupants, pets, alterations, and evidence of problems the leases do not mention.

Sellers resist this and it is worth insisting on. A unit you are not shown is a unit with something in it.

The lease expiration profile

Frequently overlooked and genuinely important.

Map when every lease expires. A property where all leases roll in the same sixty-day window carries concentrated turnover risk. If that window falls in a slow leasing season, the exposure is worse.

Staggering expirations is an operational improvement worth executing after purchase, using short initial terms to redistribute them.

The rent-to-market analysis

For each unit, establish what it would rent for today.

Units below market represent upside, subject to how quickly you can capture it — which depends on lease terms, local regulation and turnover.

Units above market represent downside, and they are the more urgent finding. A tenant paying above market will leave or negotiate at renewal, and the rent roll overstates sustainable income.

Sellers highlight the first and never the second.

What "loss to lease" means

The gap between market rent and in-place rent, expressed in dollars.

Brokers present it as guaranteed upside. It is not. Capturing it requires turnover or renewal increases, both of which take time, cost money and may be limited by regulation.

The reasonable underwriting position is to capture some of it, over a realistic period, at a realistic cost — including turnover expense and vacancy for each unit converted.

Other income

Parking, storage, laundry, pet rent, application fees, utility reimbursement.

Verify each the same way: is there a contract, and does the money appear in the bank statements?

Laundry income in particular is frequently subject to a long-term vendor contract that you will inherit, sometimes on unfavorable terms.

The reconstructed rent roll

The output of due diligence should be your own rent roll, not the seller's annotated.

Verified in-place rent, effective of concessions. Actual collections. Realistic vacancy. Market rent for each unit. Expiration schedule. Deposits held and the obligation attached.

Then underwrite from that document, and compare it with the one you were given.

The size of the difference tells you how much to trust everything else the seller said.

General information about real estate due diligence, not investment or legal advice. Requirements and practices vary by jurisdiction and transaction type. Consult qualified professionals about your own circumstances.