How to Read a Rent Roll Before Selling an LA Apartment Building

Start with the date at the top. Then choose a unit and trace its scheduled rent to the lease and any amendments or notices. Scheduled rent is the recurring amount shown as due before separately stated credits or concessions. Check how your manager's software defines the field; some reports already show a net amount.

Next, compare the charge with collections for the same period. A short payment may leave an unpaid balance. An agreed credit may reduce the amount owed. A receipt may cover an earlier month. Those differences need separate explanations, because they say different things about the income a buyer can expect.

Fannie Mae's conventional multifamily underwriting calculation separately deducts vacancy, concessions and uncollectible rent. Its guide also calls for investigating unexplained differences between updated statements and rent rolls. These are program-specific requirements, but they illustrate why a rent total alone doesn't establish the income available for financing. [1]

Use the following blank worksheet for a unit you need to clarify. Attach the supporting record rather than filling a gap from memory.

• Unit and status: _____. Identify the unit type and whether it is occupied, vacant, owner-occupied or used by a manager. Mark the status as of the rent-roll date.
• Lease and scheduled rent: _____. Record the move-in date, lease term, current recurring charge and the document supporting it. Separate parking or other charges.
• Collections and unpaid balance: _____. Identify the period paid for, any outstanding amount and whether its collectibility remains unresolved.
• Concession or credit: _____. Describe the agreement, effective period and how it appears in the ledger. Don't deduct it again if the reported rent is already net of that credit.
• Deposit held: _____. Reconcile the amount with the deposit ledger and lease. Keep it separate from recurring rental income.
• Rent authority and possible upside: _____. Identify the applicable jurisdiction, supporting rent history and any unresolved legal question. Put estimated future market rent in a separate field.

A vacant unit has no current tenant rent to collect. Some reports nevertheless assign it an asking rent when calculating gross potential rent. That can be useful, provided the vacancy deduction is visible. If your starting total includes only occupied-unit charges, don't subtract the same vacant unit's hypothetical rent from that total.

For each vacancy, note the condition, work still needed and the basis for the proposed rent. A signed lease with a future commencement date should remain distinguishable from a tenant already paying.

Refundable deposits aren't recurring rent. The IRS distinguishes a deposit that may have to be returned from money designated for the final month's rent, which it treats as advance rent. That is a federal tax distinction; it doesn't make an advance payment a new recurring income stream for valuation. Review the agreement rather than relying on a column labeled deposit. [2]

The gap between current rent and an estimated market rent is often called loss to lease. It describes a comparison, not permission to charge the difference. A nearby asking rent also may assume a renovated unit that your building doesn't have.

For a City of Los Angeles RSO unit, LAHD identifies allowable increases, registration requirements and circumstances governing increases to market rent. Check the unit's rent history and applicable rules before treating an increase as available. A sale by itself isn't a reason to substitute market rent for the current tenancy's rent. Don't apply the LA City RSO guidance to Santa Monica. [3]

If the records don't establish the lawful charge, flag that unit for a targeted review. Don't change the figure simply to make the spreadsheet agree. Once the discrepancies are explained, use the supported current income for the valuation and discuss any future rent opportunity separately, including what has to happen before it can be collected.