What Is a Rent Roll in NYC Real Estate: Reduce Your Broker Fee in NYC:
A rent roll in NYC real estate is a summary of a property’s rental income streams. The purpose of a rent roll is to help a prospective buyer calculate various real estate valuation metrics, such as the Net Operating Income (NOI) and the Cap Rate.
In addition to itemizing the actual monthly rental rates, rent rolls may also show the lease expiration date for each unit, projected monthly rents, estimated annual expenses, actual and projected gross annual and net operating income, as well as the actual and/or projected cap rates.
Rent rolls are only provided for multifamily properties which have more than one unit. If you’re buying an occupied single-family home or apartment as an investment, there’s no need for a rent roll. The listing agent will simply tell you what the current rent is and when the lease expires.
If a property has 5 units, the rent roll will show the monthly rent for each unit, lease type (term or month-to-month) and the lease maturity date. If the current rents are below market value, a listing agent may also include projected rent on the rent roll in addition to the actual and projected Net Operating Income and Cap Rates.
What Does ‘Multiple of the Rent Roll’ Mean?
‘Multiple of the Rent Roll’ is a simple metric used by investors when comparing the relative value of real estate investments. If the rent roll is $100k and the asking price is $1 million, the Multiple of the Rent Roll is 10x.
Similarly, if the asking price is $800k, the Multiple of the Rent Roll is 8x.
A multifamily investment with a lower Multiple of Rent Roll means it’s more expensive on a relative value basis compared to other properties with a higher multiple. The multiples are typically lower for more stable and lower risk investment opportunities.
For example, the Multiple of Rent Roll will be lower for a fully updated brownstone in Gramercy with 3 market-rate tenants compared to a brownstone in Bed-Stuy in need of renovation with below-market rate tenants.
What is Net Operating Income in NYC Real Estate?
Net Operating Income is calculated by deducting operating expenses from the rent roll. If the rent roll is $275,000 and operating expenses are $125,000, the Net Operating Income is $150,000.
Operating expenses typically include real estate taxes, heating, water and sewer, insurance and some provision for ongoing maintenance.
Net Operating Income on its own is a relatively unhelpful figure when comparing investment opportunities, as it does not factor in the cost of the real estate asset. Therefore, Net Operating Income is usually divided by the purchase price the calculate the Cap Rate of a real estate investment opportunity.
Analyzing cap rates is a much more useful way to compare the relative value of two or more real estate investments.
What Is the Cap Rate in NYC Real Estate?
The Cap Rate is a simple measure of the yield of a real estate investment. Cap Rate is calculated by dividing the Net Operating Income of an investment by the purchase price. Analyzing Cap Rates is a straightforward way to perform a simple relative value analysis between real estate investment opportunities.
It’s important to note that the Cap Rate does not factor in the financing structure of an investment. This allows real estate investment opportunities to be compared by buyers who may be using different financing strategies.
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