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A buyer prices your building from the rent roll, the list of every unit with who rents it, what they pay and on what terms. Those rents, times twelve, less vacancy and expenses, are the income a buyer divides by a cap rate, so every line on the roll is a line in the price. The buyer will also check each of those lines against records you did not write.
- A complete rent roll lists every unit, occupied or vacant, with the tenant, move-in date, current rent, deposit, lease end or month to month, and any concession.
- Loss to lease is the gap between in-place rent and market rent. Under the RSO only turnover closes it, so a buyer pays less for it than for rent already in place.
- For an RSO unit, the rent you report each year to LAHD's Rent Registry is a record a buyer will hold your roll against.
- In the made-up example below, one rent overstated by $250 a month costs $60,000 of price at a 5 percent cap rate.
What a complete rent roll shows
A rent roll describes every unit on one date, the empty ones included, and a buyer reads it column by column.
| Column | What a buyer reads in it |
|---|---|
| Unit, with bedrooms and bathrooms | What the unit should rent for, and whether the unit count matches the permits and the certificate of occupancy |
| Tenant | Which lease and which estoppel certificate belong to the line |
| Move-in date | How long the rent has been held down, which under rent control says as much as the rent itself |
| Current rent | The income being bought |
| Date and amount of the last increase | Whether increases followed the rules that cover the unit |
| Security deposit | Money the buyer takes over at closing, with the duty to return it, unless it goes back to the tenant instead |
| Lease end, or month to month | When the terms can change, and on an unregulated unit, when the rent can |
| Concessions and side agreements | Free months, a reduced rent for an on-site manager or a parking space thrown in, each of which changes what the unit earns |
| Other charges | Parking, storage or pet rent, counted apart from the unit rent |
| Vacancies | Which units are empty, since when, and the rent being asked |
Leave nothing off. A unit rented to a relative at a discount, a manager's unit, a unit used for storage: each belongs on the roll with a note, because a buyer will find it in the leases or on the walk-through and then wonder what else is missing.
In-place rent, market rent and loss to lease
In-place rent is what each tenant pays now. Market rent is what the same unit would lease for if it were empty today, an estimate built from comparable listings and recent leases nearby. The gap between them, added up across the building, is what buyers call loss to lease.
Take a made-up ten-unit building. Six units rent for $2,300, close to what comparable units are listed at, and four long-term tenants pay $1,600. Each of the four carries $700 a month of loss to lease, $2,800 a month in all, which is $33,600 a year.
A buyer pays for that $33,600 at a discount, if at all, because it is what the building could earn and the lender counts what it does earn. How much credit it gets depends on how the gap can close. In the City of Los Angeles an RSO unit's rent resets for a new tenant after a voluntary move-out, a buyout or an eviction for unpaid rent, so the buyer is paying for turnover nobody can schedule, and rent control's effect on value turns on exactly that.
The registered rent on an RSO unit
Every unit under the Rent Stabilization Ordinance has a second record of its rent, kept by the City. LAHD's Rent Registry requires the owner to report the rent amount and tenancy information for each RSO unit every year, on a form that asks for the move-in date and the date of the last increase, and the form must reach LAHD by the last day of February for the annual registration to be complete. Under LAHD's registration bulletin, a landlord may not demand or accept rent on an RSO unit without a valid registration certificate.
So a buyer holds your rent roll, the leases and notices of increase, and what you reported to LAHD against each other. A rent on the roll that the registry filings and the notices of increase cannot account for, or an increase larger than the RSO allowed that year, becomes a question in escrow. Shaya is not an attorney, and whether a rent is lawful is for a landlord-tenant attorney to answer, but he can show you what a rent in doubt does to the price.
The trailing twelve months that go with it
The rent roll shows one day. The trailing twelve months, which buyers call the T-12, shows the year behind it, with each month's rent collected and each expense paid. A buyer reads the two together. The roll's scheduled rent, times twelve, set against the rent the T-12 shows collected, is the building's real vacancy and credit loss, and a wide gap means empty months, unpaid rent, or a roll that has moved faster than its history.
Lenders read both as well. Freddie Mac's small balance loan program, for one, describes counting income from recent actual rent collections or the annualized current rent roll, less a vacancy allowance. Bring the T-12 by month. A single annual total hides the month a unit sat empty and the repair that ran over, and a buyer who cannot see them will ask, or will assume.
How a buyer checks it
Every line gets tested against something you did not write:
- The leases and every amendment, line by line against the roll, for rent, term, deposit and any concession.
- Estoppel certificates, short statements each tenant is asked to sign confirming the rent, the deposit, the lease term and any side agreement. The buyer or the buyer's lender will ask for them, and any difference between a tenant's answer and your roll will need explaining.
- Bank statements, matching rent deposits to the collections on the T-12.
- For RSO units, the Rent Registry filings and the notice of each increase.
- The deposits themselves. At a sale, Civil Code section 1950.5 has the seller either transfer each tenant's deposit to the buyer, with notice to the tenant, or return it to the tenant with an accounting, so the deposit column is money that changes hands in escrow.
Deposits get a second look for another reason. AB 12 limited security deposits to one month's rent from July 1, 2024, with a narrow exception for small owners, and the limit does not reach deposits collected or demanded before that date. A deposit above one month's rent collected after that date is a line a buyer will ask about.
What one wrong rent costs
An error on the roll is priced the way the rent itself is. It is annualized, then divided by the cap rate. Every figure below is made up.
| Line | Overstated rent | Unrecorded free month |
|---|---|---|
| What the roll shows | $2,450 a month | $2,400 a month |
| What the lease and the deposits show | $2,200 a month | $26,400 over a 12-month lease, or $2,200 a month |
| Overstatement per month | $250 | $200 |
| Overstatement per year | $3,000 | $2,400 |
| Price at a made-up 5 percent cap rate | $60,000 | $48,000 |
| Price at a made-up 6 percent cap rate | $50,000 | $40,000 |
At 5 percent, a wrong line moves the price by twenty times its annual amount. Both errors on one roll put $108,000 of price on income that does not exist. A buyer who finds either in escrow will take it off the price, and then read every other line of the roll again, more slowly.
Errors run the other way too. A unit shown vacant that is in fact leased, or a parking charge left off, understates the income and hands the buyer the difference at the same multiple. Shaya can go through your rent roll, leases and T-12 the way a buyer's analyst will and mark what needs fixing before the building is listed.