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Experts warn about hidden dangers of expansion

31 December 2014 Elyse Perrau

Buying a rent roll may be the quickest route to growth, but firms have been warned that it is a difficult and delicate process that cannot be rushed.

MC Rent Roll Broking director Matt Ciallella said real estate agencies choose to buy a rent roll because it is more difficult to grow one organically and quickly get the desired scale and income.

“[However] it is a really difficult and delicate process. If a vendor engages me to find someone to buy their business or rent roll, there has got to be a cultural fit,” he told Residential Property Manager.

“I get some clients that want to chase the biggest dollars and the highest multiplier, and don’t care who buys it. I warn them, if you chase that person, all they are going to do is grab the income, and might not take on the property manager,” he added.

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Mr Ciallella said this is a sticky area, with a lot of variables in terms of not taking on the property manager assigned to that section of the rent roll you are purchasing.

“They might have all the relationships with the owners, so if you don’t take on that property manager, there is a risk that they might go and work for a competitor, and if you don’t have the right restraints legally, they will start attacking and stealing those managements back,” he said.

“The purchaser thinks they have those 100 properties, but in three to six months, it starts reducing quickly.

“I will always say to the buyer, you might know that property manager and you might think they are rubbish – hire them anyway. If you hire them and put them on your new employment agreement, then you hold the power for the restraint. If you don’t, you have got to sue the vendor you bought the rent roll off, and ask them to make a claim against that PM, and that is too messy.”

Real Plus business manager Hermione Gardiner said more and more agencies are looking to purchase a rent roll as a fast way to grow.

Ms Gardiner said the benefits include greater scale, increased revenue, reduced competition and a larger database.

However, there are also negatives, such as landlord rejection, buying existing issues, a potentially poorly-run portfolio and integration issues, she added.

“If purchasing a rent roll is something you have considered at some stage, this is not something to rush into,” Ms Gardiner said.

“There are many factors to consider, and it is strongly advisable to have an expert guide you through the process.”

Experts warn about hidden dangers of expansion
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