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Real estate investing is all about compartmentalizing risk. The better you are at this the better your investment decisions. Few people invest their money without a presumed yield in mind. The Rent Roll Triangle (RRT) assists in compartmentalizing strengths and weaknesses in rental revenue and identifying areas of concern pre-acquisition.
The rent roll is the focal point of determining value. That is what makes rent roll analysis so important.
This is a specialty book for people involved in the acquisition and management of rental property. USE WITH CAUTION. Mastery of the concepts will make you feel as if you have superior knowledge and the ability to time the market. I have never met anyone that can successfully time the market- any market, the exception being Sam Zell. Use of the Rent Roll Triangle (RRT) is not a market timing devise; it is a revenue sensitivity tool to assist you in determining areas of strength and weakness from income producing real property assets.
Use of the Rent Roll Triangle points you in the direction of particular action steps to improve financial operations, however, doing so to the exclusion of all else is folly without an over-arching plan of action that takes into account other operational aspects.
People with superior knowledge and limited experience make mistakes. So take your time with implementation of the techniques discussed herein until you understand how the concepts influence your perception of value. Here is a simple example.
A newly purchased four building asset is in dire need of new roofs, windows and paint. An inexperienced operator starts painting everything immediately thinking this is the least expensive method to increase value.
An experienced operator completes all repairs to a single building first, then moves to the next building. The experienced operator understands that having all repairs accomplished to a single building will produce higher rents for that building. Note that these “buildings” could represent four units in each building or forty units in each building. The concept remains the same.
Knowledge is power and power brings change. Prior to changing “everything” based on new knowledge slow down a little. Breathe. Contemplate. Draw up a plan of action- then implement; measure twice and cut once. This is so simple, yet so powerful.
Specialized knowledge, like that represented with Rent Roll Triangle, can cause good or evil. Said another way; do not hurt yourself with this new, sharp razor of action steps (see prior paragraph).
RRT lays out strengths and weaknesses of a rental property asset utilizing the selected variables; however, there are "always" more variables than those presented in the control group. Thus, whereas with RRT you can really shine a bright light on the variables we discuss in detail, try to avoid a myopic perspective that excludes other potential pitfalls.
Every pilot has a flight checklist called into service prior to departure of each flight. Consider RRT as part of you pre-flight, pre-acquisition checklist for rental property acquisitions.
As an owner of rental property, utilize RRT to measure your operations against potential maximum financial outputs that a rental property asset can generate. RRT will assist you in measuring present day operations against potential gains in revenue. This book will assist you in identifying and isolating operational areas to improve.The financial condition of your assets should improve incrementally from the knowledge you gain as you focus on the individual aspects of the RRT formula. You will learn the pressure points that require your attention. These will usually be the same pressure points that generate increases in cash flow, and in turn, increases in the underlying value of the assets.