Why buy an existing business?

If you buy an existing business, you can analyse the profit and loss statements and balance sheet of the Company you are buying. This is an advantage because you see firsthand what you are getting in, particular the income streams of the business and the individual expenses of the business.

In addition to this you have a going concern producing revenue, with staff, brand, systems and an infrastructure in place. In essence you are making money from the day you settle.

When you start a business from scratch, you must secure and fit out a premise, build the systems, web site, arrange plant & equipment, hire and train staff- all of this before you begin to earn an income.

Statically most start up businesses struggle to make a profit and in some cases fail within 3 years from commencing. Experience would say that starting up a business require an enormous and of persistence & resilience but above all a bullet proof business plan.

BDH Solutions are rent-roll agents with over 30 years experience in connecting the right vendor with the right purchaser. To stay up to date with our latest listings, register here.

How long should the retention period be when selling a rent roll?

Naturally the vendor will want shortest time and the lowest amount and the purchaser will want the longest time and the highest amount.  So therefore what is reasonable?

I am suggesting that an amount of 10-15% of the purchaser price to be held in Trust as the retention sum for a period of up to and no more than 6 months. In most of the transaction that have been negotiated, the retention period has been 3 or 4 months.

The interest received on the retained amount should be divided between vendor and purchaser.

BDH Solutions are rent-roll agents with over 30 years experience in connecting the right vendor with the right purchaser. To stay up to date with our latest listings, register here.

Analysis of the commission rates of a rent roll

Most trust management systems will provide a potential purchaser of a rent roll with a management statistics report.

Generally this will show the statistical information of the portfolio or the rent roll, such an average rent, gross fees, letting fees, number of properties managed, number of landlord, arrears etc. It is important for a potential purchaser however, to obtain the actual commission rate charged for each property managed to review whether there is a variation in the rent commission charged across the rent roll.

The value of the rent roll is in part based on the commission charged. That said there should be a price variation or lesser multiplier paid on a rent roll where there are a number of fees charged at 4 or 5%. It is too hard to increase the commission rate to 6-8% as owners will resist this increase. Therefore as a conclusion, the higher the commission charged, the higher the multiplier a buyer will pay.

If you own a rent roll, start the process to increase your commission rate over time and to do this in conjunction with increasing your rent. It will be hard for the landlord to resist pay a higher commission if at the same time they are getting a rent increase.

BDH Solutions are rent-roll agents with over 30 years experience in connecting the right vendor with the right purchaser. To stay up to date with our latest listings, register here.

What restrictions should the vendor offer when selling a rent roll?

A purchaser expects that the vendor selling a rent roll should offer and entered into the contract of sale with a restrictive covenant clause. This clause should preclude the vendor from having any interaction with the landlords of the rent roll sold for;

a.        A period of up to 3 years.

b.      An area of up to 10 kilometres from the vendor’s office.

c.       In the capacity of director, shareholder, branch manager or consultant.

The vendor should be further restricted from soliciting or assisting others to solicit the landlords and should be restricted from providing any material to enable someone to solicit the landlords.

BDH Solutions are rent-roll agents with over 30 years experience in connecting the right vendor with the right purchaser. To stay up to date with our latest listings, register here.