Rent Roll

The rent roll is a lending and appraisal document with no tax definition.

No Code section or regulation defines a rent roll; its rules come from lending practice. The OCC handbook on commercial real estate lending lists operating statements and rent rolls among the documents a bank keeps in a loan file, and expects monthly rent rolls during lease-up. It also warns that a rent roll may show high occupancy while actual collections reveal a weaker economic occupancy.

The Fannie Mae Multifamily Guide has lenders give the appraiser a rent roll dated within 60 days of the inspection, and its lease audit rules require the lender to reconcile the rent roll with the signed leases before committing. A buyer with exchange money at stake should do no less.

That audit gives a practical checklist. For 5 to 9 units the guide has the lender review every available lease, and for 10 to 100 units the greater of 5 leases or 10%. To validate collections it asks for a cash ledger, a receipts journal or at least three months of bank statements, plus an accounts receivable or past-due report from the site manager.

A hypothetical: a 20-unit rent roll that overstates income by $54,000.

Hypothetical figures: a 20-unit building's rent roll shows every unit leased at $1,500 a month, $30,000 a month or $360,000 a year. You ask for the leases and an aged receivables report. Three tenants are more than 60 days behind, and two new leases include a free month that the rent roll does not show.

Bank deposits for the last three months average $25,500 a month. That is $4,500 a month, or $54,000 a year, of scheduled rent the building is not collecting. If the asking price was built on the rent roll, the price assumes income that does not arrive. Run your own numbers with your CPA and adviser.

It bites before day 45 and again when you read a DST offering.

Section 1031(a)(3) gives you 45 days from your sale to identify replacement property, usually under the three-property rule. Ask for the rent roll, leases, receivables report and a trailing twelve months statement as soon as a property is on your list, so a bad rent roll costs you a candidate rather than a closing.

When a DST offering is sold only to accredited investors, Rule 502(b) prescribes no specific disclosure to them. What you see about tenants and leases is whatever the memorandum chooses to include, so ask for the lease summary; the questions to put are in the DST due diligence checklist and reading a DST memorandum.