A Specialist Broker Explains How Rent Roll Lending Works

We sit down with rent roll finance broker Travis Whelan to unpack how rent roll lending actually works and why most real estate agencies waste time going to the wrong bank or the wrong banker. We get honest about what lenders look for, what prep makes you fundable, and how messy books can block your next acquisition even when the rent roll looks healthy. 

• Travis’ background in business banking and rent roll finance 
• how rent roll finance differs from standard mortgage broking 
• why only a handful of lenders truly play in the space 
• what happens when one bank says no and another says yes 
• the mix of micro agencies, bolt-on purchases, and large exits 
• why “paid off in three years” often becomes eight to ten 
• the rise of property managers starting micro businesses for lifestyle and autonomy 
• the sales director dilemma and why some undervalue the rent roll 
• outsourcing as a bridge strategy for small portfolios 
• what documents lenders want: financials, tax returns, valuation reports, statements, personal position 
• why formal pre-approval is hard for buying a rent roll 
• personal expenses in the P&L, EBITDA vs adjusted EBITDA, and what banks will accept 
• how to get sale ready years before you sell 

Travis at www.therentrollfinancebroker.com.au or find The Rent Roll Finance Broker on Instagram or Facebook 

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This podcast is kindly sponsored by The Associates Co. 

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Transcript

Welcome And Why Finance Matters

SPEAKER_01 0:04

Welcome to today's podcast. I am joined with the lovely Travis Wheeland. Travis, welcome.

SPEAKER_00 0:11

Thanks, Ash. Hi today.

SPEAKER_01 0:13

We're good, we're good. We uh we we're used to having conversations with property managers, and so we're gonna have a conversation with you today, which is a little bit different for people's ears. But you are from the Rent Roll Finance Broker, and we must have met, was it at the Super Size Copy Convotes last year?

SPEAKER_00 0:34

Yeah, it was, yeah, in Melbourne.

SPEAKER_01 0:35

Yes, and and you've been heavily involved with with that side of things as well. So thank you. I appreciate you coming to the table with uh with the other property managers. But we are going to have a chat today, number one on what you do, but number two on the I want to sort of touch on why it's important for property managers sort of just to understand the business side of things. I think that's where I want to go with the conversation.

Travis’ Path Into Rent Roll Finance

SPEAKER_01 1:05

So we'll we'll chat about that. Um but first of all, do me a little intro about sort of who you are, a bit of your like your background, and then what you do now.

SPEAKER_00 1:14

Yeah, of course. So yeah, so I've been in business banking for six or coming up 17 years now. Um, so I started as a graduate way back in 2010 and moved my way through through the bank at Westpac in different departments, small business banking into commercial banking. But along the way, I met a couple of people who were specifically involved in rent and roll finance. So when I had a conversation with them, my interest peaked because I've always had real estate in my family. My my father is a real estate agent, still is today. And so I always loved real estate. And I didn't know there was a way I could blend real estate and finance apart from say property development. And so when I really found out there was this thing called rent and roll and rent and roll finance, I was heavily intrigued. And by the time it rolled around to about 2018, I was in the commercial real estate team at Westpac. So previously to that, I was writing those deals in in small business land as well. So I've been doing rent and roll finance for about 10 or 11 years now. Yeah, do another mortgage broking as well underneath that banner, but our our prime focus is rent and roll financing. And I think part of my role isn't just financing a rent role, it's about educating people what's at the fingertips of the director. So whether it be property managers, BDMs, owners, it doesn't cease to amaze me how many people in real estate don't understand what is available to them, what is at their fingertips. And so, yeah, that's that's part of what we do. And uh, we do specialise in niche. There's only a few of us in Australia that just specialise and we all get along pretty well. But is there definitely a specialised niche that most brokers don't tend to understand?

SPEAKER_01 2:49

Do you find that your work comes directly

Where Rent Roll Deals Come From

SPEAKER_01 2:52

from like the business brokers, or do people come directly to you? What would be a normal avenue for someone who was interested in buying a rent role?

SPEAKER_00 3:04

Yeah, I think both of those avenues are very strong for me, probably 50-50. So the rent and roll brokers across the country have great relationships with people who are looking to buy and sell, and so they're a great source for us. Typically, when we get a lead from them, there's already a deal on the table. Sometimes they want to pre-qualify something and they'll get us involved nice and early. Other times someone calls up and goes, I want to buy this, let's do a deal, and then they refer onto there. Alternatively, because of the branding, the way he, how specific it is, somebody, you know, it's like you go to Google and just type in Rentrol Finance as an example, and we just pop up. So they give me a call and we have a chat. So it's probably 50-50 between those avenues. There are the odd ones where a client will come to me because someone else has said, Hey, I bought a rental use trailer museum. So that's a smaller percentage at the moment. But yeah, the brokers are a great source. I'm idea, always happy to answer questions off the website.

SPEAKER_01 3:54

It's such a niche. So would it be similar to finance brokers where like the you know, the the per individual can sure they can go straight to their bank, but they're not really getting access to the best option. So

Why A Specialist Broker Wins

SPEAKER_01 4:10

that's why you'd go through a broker for like a mortgage or something like that. Is that the main the main situation with you, or are there any other benefits that people should know of with the benefit of coming to you for the finance versus directly to a bank?

SPEAKER_00 4:27

Well, that is a big part of it. So certainly rate and cost and and whatnot is always part of it, right? So you can go direct to a bank and get a cost versus something a broker might be able to achieve. But in a specialized space such as this, it's more about the knowledge available to you through a broker. So let's just say, and I'll use bank names because we all know them anyway, but the real estate bank, Macquarie, let's just say I'm a real estate agency and I want to go buy a rent roll and I just go to Macquarie Bank. Let's just say I won't go into specifics of policies for each bank. But let's just say go to Macquarie Bank and they go, hey, you don't fit our policy for A, B, C, or D reasons. Simple as that. Then you've got two options. You either go find another bank and go through that process again and then potentially get knocked back or maybe get approved, depending on the scenario. Or number two, you just give up and move on. So, or number three, go find just a broker in general, who will probably go through the same process. So where we come in is not just the deal itself into okay, what's the you know, the cost to you, the fees, charges, that sort of stuff. It's okay, you've come to us. This is what you want to achieve. Based on what you've told me, we can go to X lenders because it's really only five or six lenders that play in Space properly. There's a few in and around, but it's not like if you come to me, let's just say just a home loan environment for a minute, right? You're self-employed, your tax returns are schmick. We can take you to a top-tier bank. No worries. If you come to me, you're self-employed, the financials don't look great, but your buzz statements and growth show that we can do reverse engineered profit and losses doing what they call low doc lending. If you've heard of that before, I can take you to a second tier or third tier lender and still get loans, just slightly higher rates. There isn't a first, second, third-tier lender environment for rent roles. Because rent roles are essentially unsecured business finance. Even though they're against an asset, they're classified as unsecured business finance amongst the lenders. So when you get outside of that top tier, there aren't any second-tier lenders doing rent roll finance because they are all secured lenders, commercial property, residential property. So if you don't, if you go through that top process and you can't get a loan through those what those top ones, then you're going to end up in a second-tier environment, having to put your house up or your commercial property up, et cetera, when you should be able to do it on your rent roll. So within that, within coming to us as brokers, we can advise you on which lender would do the right that type of transaction, whether it's a brand new purchase, whether it's a bolt-on rent roll, whether it's 100 properties, 4,000 properties, which one's going to suit your terms for that? Which one will be able to do it secured, unsecured, and take you on that journey down? Because just because Macquarie said no doesn't mean Westpac won't say yes, or judo won't say yes, or CBA might say no, but A and Z said yes. The other reason why you come see a broker rather than direct to bank is that you really don't get the right person when you go direct to bank. So let's just say you're in in Perth and you go to the local branch and you say, Hey, Mr. CBA banker, can you please help me with rent and roll finance? One of two things is probably going to happen there. Number one, they'll say, I have no idea what you're talking about. Or number two, I'll help you out, and they actually don't know the policy because rent and roll is a specific niche policy for a specific industry, and only certain people in the banks can write the deals. I was one. So when I was at Westpac in the small business banking team, there were I think 120 of us across the country, across different banks and start branches and states. I was the only one in the country accredited to write rent and roll transactions in small business space in Victoria. So I was in so I was in Victoria, but the only one across the country accredited to write that deal. So if you go to someone in Queensland, they weren't allowed to because it didn't fit the set. So if you come to a broker, we will have the relationships with the right people at the right bank. So I've got direct relationships in the real estate specific teams across all the major lenders and a couple of those random subsidiaries that you would never have heard of that do do a bit of this stuff. We know exactly where to go. So we can call directly to the banker writing the transaction and not take you down a garden path, which is what inevitably will happen if you go direct.

SPEAKER_01 8:41

I mean, it's such a stressful time anyway, having to go get finance. Like the last thing you want to do is be being mucked around by people that don't understand real estate. So I can imagine that'd be an idea. I've always been protected because my sisters are both in finance. And so obviously, one of my sisters being active and understanding real estate really well, we've been able to do it. So, and that was when we acquired a portfolio back in 2010. And so we yeah, so I I don't remember all the ins and outs, but I remember she was able to, but specifically because she understood the business and understood and was able to talk the right talk to get it done. So I can see how that's

Small Bolt Ons And Big Exits

SPEAKER_01 9:24

important. The are there any trends happening? I guess I've got questions you might not, you might not know. And if you don't know, or if you can't say anything, just say, you know, can't say Ash. But like I'd love to sort of know if there's any trends happening. Are we finding that? Like, are you getting a higher volume of smaller purchases? Are we seeing really big transactions? Are we seeing people buy cash, like uh buy portfolios for cash?

SPEAKER_00 9:49

Yeah, look, it's a it is a real mix across the board. So again, I'll preface this with I have a very specific uh brand, which helps a lot with these with these phone calls. But I can't tell you how many phone calls I've had with smaller agencies looking to buy and scale up. So I'm talking agency with say 25, 30, 40 properties going, can I buy 20 properties? The answer is yes, you can, but you can't get finance for that in the in a traditional rent and roll sense because it's too small for the lenders. So they all start minimum. So one of them is 100 properties, everyone has 250 and above. So I'm not saying there's not a solution, just a side note, there are solutions, but it's just not under traditional rent and roll finance. So I speak to a lot of those people who are going, I've got 2530, I'm a sales director, or I love doing the BDM stuff and I don't want to do that, but I really want to grow a rent roll. Easy to bolt one on and away you go. Because 25 takes you to 50, you double your revenue, your cost base starts, you know, proportionally comes down. It makes perfect sense. So getting a lot of those, but certainly getting a lot of those 250, 300 is just going, well, there's a 30 or 40 property portfolio. Can I bolt it on? So there's lots of those little smaller requests to come in. Having said that, I've got a couple of directors I'm speaking to at the moment where they're they have 250, 300 properties and they're looking at a 600, 700 portfolio. So there are some, I think on that end of the scale, those size portfolios, people are looking to sell because they're likely exiting the industry, or they are retiring and exiting itself anyway, and they're looking to weigh out. So there is a real mix and a blend. So the bigger age, the bigger agencies would either have a direct relationship with a bank or a broker already, or they've got the cash. Service 50-60 properties, and you've already got 4,000, you're not going to need to borrow for that. You just buy it in cash. So uh it's a real blend. I'm not really seeing a specific trend in those areas, but I've got I've got calls to all of the above in the last, I think in the last month, all of the above have been pretty, pretty uh diverse.

SPEAKER_01 11:47

I it always throws me when I hear of people like buying small portfolios, like you know, I I I think that uh I think there's there's a broker that had told me that the lowest that they've done they've like maybe sold 12 properties, like 12 in a portfolio. And I'm like, really? Like I just find it, just you know what, just give them away. Just like I I don't I don't actually understand that mentality. And I and I actually don't understand the mentality of 20 or 25 because it's it's such an interesting, like what was interesting is that when I was I bought a portfolio back in 2010, I actually did

The Real Payoff Timeline

SPEAKER_01 12:25

the exercise. I remember we were at 200 and maybe we're buying 200, something like that. I did the exercise at that time, and it actually did work out better financially for us to buy another portfolio. Like that actually worked out well. However, what I think if I was gonna speak really honestly to a friend who was doing it, I would honestly say, because in people's minds when they buy, they go, Oh, I can pay that back in three years because because you know, you're buying the three multiple or whatever it might be. It just doesn't seem to work that way. And I don't know if that was just me or if that is in general, but I know for me, it took us probably about 10 years to eventually pay that whole portfolio off. And I but I I can't explain why. But that's how long it took.

SPEAKER_00 13:16

Well, that's the real I had I had a chat to a real estate agent recently on that same thing. So they were saying she was somewhere from across the ditch, actually. I got introduced to someone in New Zealand who was looking at maybe entering the Australian market at some point, and so I'd said to them, listen three times. And look, in theory, if you were really disciplined, you could pay it off in three years. Like in theory, it's gone, well, you're right, but then you add it, add the interest cost, the staff cost, this, that, and the other, and all of a sudden it's probably eight, nine, ten years, which is a completely valid argument to have. And it absolutely can. Just depends on what you need to do with that rent and roll to pay it off. So let's just say you've got, I don't know, let's say you've got 290 properties and you've got another 100 you could buy optimally before you've got to put more staff on. Well, if you could bring that 100 on and then you've got finance attached, it might cost take you six or seven years by the time you for the actual payoff by the time you pay off the loan at certain repayments. If you're gonna bring staff on, then really the payoff could be longer than that. Absolutely. So there's a straight answer to that that question, but it's 100% right in terms of unless you, you know, you can buy interest-free finance, it's not gonna be three years of that payment, it's gonna be longer because you've got to pay finance costs and acquisition costs and things like that. So it's it is a fair point. And all the banks will go up to 10 to 15 years on on loan terms as well. So they do know that it's gonna take longer. Everyone sets out with the intention to pay it off quicker, but in reality, when the cash flow pressures come in, staff, compliance, interest costs, annual reviews, all those things come in play. People go, great, I don't need to put any staff on. And that might be 100% right. But there's still other costs at play that come into it, whether you like it or not, just by increased nature of the beast.

SPEAKER_01 14:57

Well, we had market change about probably three or four years in, and so with that there was a big drop. And so, you know, we did results down just to doing the bare minimum of payments as as well. So, like there can be market fluctuations.

What Agency Growth Looks Like Now

SPEAKER_01 15:13

Where do you see the where do you see the future like of real estate and lending and just like with because you just come with a different insight and a different background with what's happening in the real estate space from a business point of view? Do you think we're gonna see you know the smaller businesses diminishing? Are we gonna see more lifestyle businesses? Are we gonna see the bigger get bigger? Like, do you have any thoughts or opinions around what the business setting looks like for agencies?

SPEAKER_00 15:47

Yeah, look, there's definitely differing views in the market about that. What I'm currently seeing is that a lot of good property managers who have um some BDM skill going out on their own. I don't think in my time in the industry they've seen so many PMs go out on their own. There's so many micro businesses out there with the 25s, 30s. And they're they're loving buying the 20 and 30, especially if they've got a little bit of equity in their mortgage from before they left or you know, some cash savings. I'll go by the 25 and they'll go from okay, I've got a couple of properties I'm starting with. So cool, I've got $35,000 of revenue coming in to start me while I'm managing these to get going. So I've seen lots of those micro ones, and there are some brands that are out there right now to support that. We know certainly some people that you and I both share some friends that are starting some bigger businesses that are all very, very small micro PM books, and it's a great idea because there's so many that want to do it. On the other side, we're seeing a lot of those 2530s are being sold because they're sales directors who don't want anything to do with property management anymore, especially in Victoria. You know what the um the compliance standards are like over here at the moment? You've got a salesperson who just wants to go sell property, but they've always had property management because they have to, but now they're too busy wanting to sell a property, they don't have enough time to deal with the compliance, so they're selling off. So I think we'll see more of that where those sales directors will make a call of one, I want to get rid of it, or B, I've got to go buy to bring in. I don't think there'll be any sort of I'll just potter around. So yeah, so I suppose the recap is those smaller ones in the sales business, I'm finding and looking to sell. There's more and more PMs leaving to start their own so lots of micro agencies because of that lifestyle that it does bring. They can manage how many, how many they want, whoever they want, whenever they want. Doesn't fit your business, just I don't want you. That's fine. Whereas often they don't have that choice working for someone to go, you know what, you I do not want you as a landlord. Often they still have to bring them on as a landlord, or they have to keep as a landlord to keep the director happy or whatnot. But in their own business, they don't have to put up with it.

Partnerships Between Sales And PM

SPEAKER_01 17:48

All I'm hearing is a match made in heaven with those sales directors that want to get rid of their 25, and then those property managers who want to be out on their own and have full control buying those properties. Why are those two not marrying up together and having a joint business?

SPEAKER_00 18:46

That's a great question. And one that I don't know if you and I can answer here in an hour, but I think a lot of the time ends up being autonomy. I mean, a lot of people want to go on their own because they want autonomy, but they don't, so they don't want to answer to anyone. So if you're trying to partner up, you lose either that autonomy. But I think also there are so many unknowns about partnership. So you can be best friends going into business and all of a sudden you're not best friends anymore. It's funny what happens when money gets involved. People who don't know each other come together to form a partnership and they realize that the person they thought they're getting a partnership with isn't the person they thought they were. So it does take a big element of trust. I've seen I've seen a lot of them where they do do that. So a sales director has been doing it for a long time, has known a property manager for a long time from a previous life, they come on, they do it together, and they go really, really well. So it does work. So to me, you're right, this is a match made in heaven. You do sales, I'll do PM, we'll work it out together. And there's been seriously successful businesses off that. But there's always hesitations because you don't really know how the other person properly operates until you're in a business together.

SPEAKER_01 19:46

Yeah, I'm I'm just my brain's just like going, and I'm sure there is some sort of model out there, someone's already doing it, so I'm I'm sure there is, but like my brain's just thinking, okay, that's easy because you've because you've got two comp like a salesperson, a property manager's two different, completely um two completely different people. But I'm just thinking, is there a way that you could just have like a little bit of a shelf company where it just holds a subscription? So you just share those subscriptions, but then you still hold your own businesses underneath and maybe you know, like from a referral point of view, but then saying that you can probably still have a referral system with an independent agency, so you don't really need to do that. I was just thinking of how to share the expenses with it, but there is there are sort of independent franchises out that can probably offer that. But it's also it's just like so interesting because the and then I I can say it, but you can't say it because we don't want to affect your reputation, but it's okay to affect mine, is sales-led directors. And I'm the the it's very stereotypical, but the stereotypical sales-led director who just wants to sell house has accidentally built 25 properties because they've just said yes, but then realize it's actually harder than what it is. Like they have such a short-term mentality. Like, like, do they not understand the value of their rent role if they were just to bring someone in to manage that?

SPEAKER_00 21:18

Like I think sometimes that is the case. And I don't think there's anything reputation, I think it's just the reality you're talking about there, Ash.

SPEAKER_01 21:25

And I think a lot of it's not I just didn't want you to say that they were douchebags. That's all. Because I don't want to think you I was saying it, I was saying on behalf.

SPEAKER_00 21:33

So I think I think that there's there's an element where they don't understand the power of a rent role. Or some I I've looked I deal with also directors, I deal with directors who fully 100% understand the power of a rent roll. And so I'm talking, let's call sales, just purely sales directors at the moment. Some completely 100% wholly understand it. And they have synergies with teams, I'm sure you do with your team around because I kind of say if you're in property management, you're in sales. If you're in sales, you're in property management. Because if you're not looking at the property with the other's lens when you're trying to lease it out or sell it, then you're losing the point because you can't go and go, uh, go, go, oh great, to an investor, hey, you want to buy this, you don't have to do anything to the property. You sort it, then go to the property manager who goes, Hey, you've got to do 10 grand at upgrades before you start leasing this. And they go, hang on, the the he told me I didn't have to. So A, the sales team will lose, you know, lose integrity, or B, the property manager will lose the deal because you're who who's right, who's wrong, right? So there are some awesome property management directors who, also direct sales directors who understand that and they really work together, and that's excellent. And then on the other end of the scale, you have whether it be a sales director who doesn't have any idea at all about the power of a revenue. Role. So they'll then it's like, oh, just want a rent role to sell off it. Completely, I don't care. I just want to sell, sell, sell. Gives me a constant flow of leads. Which it also does. So there's two ends of the spectrum in there. But I think a lot of the time it's because salespeople, sales led directors often don't understand what the power of a record rent role is. So the power of a good rent role in my eyes is that if you have a good real rent role underpinning your entire business, then your sales can be your cream. If you have your under rent role covering the expenses of the business, it's not purely to cover the expenses of the business, because at reality, at three, four, three times if you sell it in 10, 20 years, it's an asset to sell. So you're building value to yourself at the same time. But if you can build it up where the rent roll basically covers all your costs, imagine how big your cream would be if you got your sales team coming as well. So I think a lot of it is that they don't understand the power of a rent roll and what is there at their fingertips. We all have the directors on property management or sales who just don't care about the side, which never works. We understand those people out there, and that's their prerogative, that's not a problem. But I think a lot of it exists because they don't un sales ed directors often don't understand what is there and what's available. And if you if to be fair as well, if I'm really chewing this out, because I do verbally process a little bit, if you have a sales, say sales business and you've only got 25 or 30, you're trying to run it, and you're gonna bring a PM on at 60, 70, 80 grand a year, it's gonna be loss making straight away. So you need to bring someone on who's gonna generate that business. So you need to bring a BDM slash PM on to make sure they're on the road getting business and then incentivize them properly.

SPEAKER_01 24:21

Yeah. I would when we've had a couple of startups that we've through PMC, what we have seen is that the sales director they would

Outsourcing To Survive Early Growth

SPEAKER_01 24:31

actually outsource quite a lot of that small portfolio. So they would outsource their routine inspections, there they can actually uh outsource home opens through um property assist, PCRs, finals, all of that outside work. And then it's just basically the sales director having just to deal with the you know, the over-the-phone email stuff. And what they've done is they've done that up to 50. When they get to 50, they then hired someone in who can they can, I think they've continued to outsource for that person's for growth and those phone calls and onboarding. Then when that got to, I I want to say to like 100 or 150, then yeah, they went back and outsourced again. But there was actually a process to it. It was like using outsourcing to get to a point, hiring someone, actually, the person did do everything. And then when it got to 100, they went outsourcing again for the next stage. It was actually quite a clever way of doing it and to stay sane as the sales director through those early stages. So there is a method to it.

SPEAKER_00 25:36

There are, and there are companies out there that will help you manage as well. So I won't name them on here because I've got a butcher them. But there's a few companies out there, if you've only got 15, 20, you can go, hey, you manage them for me, they take a good clip, they pay you back. And when you're ready to take on a team, you can take that back, and then it's all yours. So I've seen a really good news story of that. I've also seen from that same outsourced business a really horror story on that. So, like, there's good, just like any.

SPEAKER_01 26:04

Is Leafield the one that you're thinking of? Is Leaffield the one Leaf Field the one you're thinking of?

SPEAKER_00 26:10

No, I haven't heard of that one. There's a few, there's a few out there, but I haven't heard of that one.

SPEAKER_01 26:13

Okay, yeah, no, the absolute figure is that yeah, that's the one that that I know of. So yeah, gentlemen, I mean that's something if you're listening, if you reach out to Trav or to me, yeah, we can both put you in touch with someone that can help actually help you with that. It's good to know of those details. If I was buying a rent roll today, what would you? I know that this is a big question, so just do it as simple as you can for the

What Lenders Want From You

SPEAKER_01 26:37

listeners. If I was to buy a rent roll today, would you be what would you be needing from me? You'd be needing an up-to-date, you know, PL. Would you be needing lots of personal information from me as well, or more just business?

SPEAKER_00 26:53

Yeah. It really depends on the deal. So the smaller deals, the the context of this is uh in the in the banking environment, finance environment, it's kind of tiers where different compliance metrics kick in. So kind of under $3 million of business lending sits in the small business space, which is covered by all these different codes and whatnot. So that number is a key number because anything kind of under that is still, they're gonna look at it very much like it's not a home loan, but the same sort of documents as a home loan, like lots more documents because they've got to cover all these things. Do they need to go to the nth degree and ask what your blood type is, like a home loan? No, not no, they don't, but they still need a lot more documents because in the day, generally three million and under, it's generally one or two directors, they've got home loans and things like their kids support through school, so they're gonna make sure the profits go the other through and can afford all that as well. So, but over that you start getting a bit more flexibility in that because you might have multiple directors and multiple shareholders, and it becomes quite complex to do all that. So there is still, you know, there's still bits to do, but you know, the bigger deals tend to have more flexibility and what you don't have to give. However, the standard things I would need to ask for would be two years of full financials, tax returns for the company, any family trusts and directors and shareholders, depending on the structure. If you're just a mum and dad business, mum and dad shareholders, and you've got one company and that's it, it's just literally company and two of you. But if you have multiple directors, multiple shareholders, and different trust structures and things like that, we need two years of the whole group. And that's purely to follow the money. So A when we say, okay, cool, the head entity is profitable and can afford this new rent roll, or we can afford this refinance, or we can afford the cash out. Because one of the reasons you can use rent roll finance is if you've put $200,000 of your own money in to go and fit out a site, you know, podcast rooms and stuff like that, on your balance sheet, it'll owe you money back. So we can use your rent roll to finance it to give you your money back tax-free, and the business pays for it on a loan. So I've digressed a little bit there, but we want to follow the money through. Can you afford it? And then how does it distribute? So profit in the so gross profit at the top, net profit at the bottom, where does it go? And then can the where the personal stuff comes in is can you afford your own stuff before we give you this new debt? Because some of these debts aren't small. So if you're buying 200 properties, you're barely walking away with change for a million bucks now. So depending on where you are, it could be a lot higher than that. So they want to be able to know that A, can the business afford it, B, can you afford it? And then so, you know, the way the banks will use it is they take if there's surplus from the top, once everything's afforded, there's a surplus from the top, they'll make sure it distributes down to the directors. And if they can all service for a hunky-dory, if they can't, then we're going to try and pinch my money from the top or put if there's surplus from the family, push it back up. It's still a group level position in no smaller ones. So two years of tax returns are financial so we can follow the money and profitability. Then we would get your current rent and roll valuation report. Each software has its own different thing. A property me calls it the recurring income report. All the other ones have their own label. Top of my head, can't remember what they are. Tax portals to show you what your tax position is. So the income tax and integrated client account. Previous statements of your bank. So if you're, let's say you're with Macquarie, we're going to Westpac because Westpac will do the deal, we would need your statements. And if you have missed payments and dishonors, it's going to be a lot harder to do than if it's a clear statement. So they're kind of the typical things, and then a normal personal statement of position. So rent role valuation, financials, personal statement of position, and some statements. And then it gives a really good idea what we can do.

SPEAKER_01 30:23

Do people these days get pre-approval to know how much they could borrow for a rent roll, like you do when you go to buy a house? Or is it you don't really is it too much work to do pre-approvals?

SPEAKER_00 30:38

It's not necessarily too much work to do with pre-approvals. There's too many variables with pre-approvals.

Why Formal Pre Approval Fails

SPEAKER_00 30:44

So the answer is no, you can't get a formal pre-approval. But what we can do is that we can, hey, Ash, you want to buy a rent roll? Give me all your data. I'll run through all the numbers and look like it's fine if it's possible. If I think it's possible, then I'll engage with my banking colleagues and go, right. So when I speak, when I see a deal, I'll know if it goes to Macquarie and NAB or Judo and Westpac or whatever it might be. I had a deal recently where it fit everyone. So I'm like, stuff it. I sent to all five of them and said, just give me a price, and just chose the best one that was going to work for the client. Because they're a startup, so we can just choose anything we wanted. So we will do that. And then once we have comfort, we go back to the client and go, right, not a formal pre-approval, but based on the info you've given me and based on what the banks say and it looks like as a transaction. And then they can go shopping and bits, because it's all theoretical at that point. If you've got a rent roll, it's a lot easier to get more of a firm understanding because if you've got and bought one or you're under contract or you've you're in the information memorandum stage only, you can give me that and I can go, hey, this is an actual rent role we're looking at. So we have actual income numbers, actual staff numbers, actual locations, concentrations, arrears, vacancies, we can get a really good understanding and go, yeah, we've bolt that in and we can fix, we can do it. Whereas if you go, I'm looking for one about 200 and about a purchase price of X, well, we're just making numbers up. So that's why we can't do a pre-approval. Because you might go 200 properties, fantastic. But if that 200 properties is 1,500 bucks a property, that's 300,000 revenue. At three times is 900 grand. But if that 200 property is actually 1900 bucks, which why am I doing random numbers? 2,000 bucks a property, that's 400,000 becomes 1.2. So all of a sudden your borrowing capacity needs to be much higher. But the income coming in is the same. So your borrowing capacity on a service can't go up anymore, but you need to have more equity available. So it's there's two hard to do a formal pre-approval. Whereas in home loan land or buying a commercial property, typically you go, cool, I'm going to go buy a $500,000 property. We would apply somewhere between a four and six percent return, depending on what type of asset it is. And you're usually within a few bucks either way. And everyone's kind of aware that you might come down a little bit or whatnot. In a in buying a business, there are too many variables to be able to go. Here's a pre-approval to buy 200 properties, or here's a pre-approval to borrow a million dollars, because one affects the other so drastically.

SPEAKER_01 33:10

Yeah, okay. Last question for you is and see, I run a very squeaky clean agency. So because I've got a business partner,

Personal Spending And EBITDA Reality

SPEAKER_01 33:21

we are very clean in that there is no personal expenses that go through our business. It is, you know, it is what it is is purely business expenses. However, I'm not naive due to the fact, and if I was a solo business owner, I would do the same as well. But business owners can sometimes be putting things through the business that are not maybe directly business expenses. You know where I'm going with this. Are we seeing like because the way that I see it is if you do that, that might be fine in the short term. That this is going to affect you when you want to go borrow, or if you want to show your figures to if you want to show your figures to a bank for lending or you know what I mean? It's not going to be, it's not going to work in the long term. Are you seeing that happening? Are people doing that?

SPEAKER_00 34:10

100%. Without a without a shadow of a doubt. And some are joint directors and multiple directors and things like that. And look, I typically find when that happens on a multiple director business, they typically end up taking whatever proportion to their shareholding or they apportion it to their wage later on in the book. So like it might look like it's you know random drawings now, but by the time the year's out, they'll finalize them as wage and tip, you know, from that side of it. In the sole operator businesses, even the you know, ones with five, six hundred properties that are just cell director, it is rife. And the looks on faces when I say, Well, you can't afford the debt we want, they go, Yeah, but I do this, this, this, this, and this through the business. That's all my personal expenses. And I go, that's awesome. But the bank doesn't care about that. They look at your profit and your loss. Now, can we add back things and can we, you know, manipulate, it's not the word, but manipulate the numbers to tell a different story. Pull them out because 80% of my job, even 90% is storytelling.

SPEAKER_01 35:12

Oh, then creative is the word I like to use.

SPEAKER_00 35:13

Can we be creative? Can we be creative? And then look, I have a client who I've dealt with deal with regularly, and every personal expense no demand comes out of there, from their mortgage to their groceries. And so there are clearly things that we can add back, and it's obvious on the profit and loss. When it says direct to home loan interest, you go, okay, all right. But you can pull it out, right? So when we're looking, we look at the profit and then we add back your interest. So that becomes e-bits, so earnings prefer interest and tax. And then we add back any depreciation amortization because that so depreciation is a non-cash expense. So it's like, well, it's just writing something down. So that becomes EBITDA. And that number's important because we're not, if we're then adding loans to service into that, we're not double counting interest. So interest on interest would be hurting your position. And we're not counting non-cash expense in terms of how you service your debt. So we always service not on profit, but on EBITDA. So that's profit. So net profit plus interest is EBIT plus depreciation amortization is EBITDA, right? So on every single deal we do, that's our baseline servicing for the business. But then we can do what we call adjusted EBITDA. And so adjusted EBITDA is we take out all the other things or add them all in. So for example, you buy a rent roll, my adjusted EBITDA will be the EBITDA plus new management income, minus any new expenses like property manager or new lease or whatever it might be on a premises, fit out, whatever it might be. So that's what how we adjust. So in your example, what it would be is your EBITDA plus the director's home loan, plus the director's trips to Bali, plus the director's groceries, plus the director's kids' private school fees, and we kind of get to the adjusted EBITDA number. And we can tell the story off that. Now, there's two parts to this. Number one, will the bank accept it? Number two, will the bank accept it ongoing? So they might go, okay, all right, I can see what you're doing and I understand why. We're gonna do the deal, but if you continue to do this, you're not gonna support you anymore. And some directors take that on board, they change their spending criteria, some forget all about it, and then they come in two years' time and try and do some more, and they go, We told you we wouldn't support this again. So it's really important you don't put really like things like that for the business because directors, things like directors' private school fees and directors' home loan interest, it's really obvious we can pull it out. We can add it to the city.

SPEAKER_01 37:38

Do people really do that? People do that, put it in.

SPEAKER_00 37:42

Yep, absolutely they do. Absolutely.

SPEAKER_01 37:44

So But they can't claim it.

SPEAKER_00 37:47

That's the thing, they can't because it's not to do with the business, but some accountants are very creative out there in the world. And so I'm just gonna shift a bit because there's a car out there that all of a sudden is shining.

SPEAKER_01 37:59

I need the details of those accountants, Trav. I think that would be like a little black book, maybe a little black book you could do for us.

SPEAKER_00 38:05

Yeah, exactly. Things that I've seen people do that they shouldn't be doing. But no, absolutely. So I've got a letter from the accountant for this for one of these other ones saying I can claim all these things back. Now, in the you know, hopefully, if that particular client is watching, we're gonna we're gonna try and sort you out. But there's also multiple clients in that bonus, not just one or two, I'm saying. If it was one or two, you go, oh, it's so ripe.

SPEAKER_01 38:28

And again, oh no, this is a real common thing at 100%. It is happening. I mean, I would even go as far as saying it's probably 80% of people doing it.

SPEAKER_00 38:37

Yeah, look, if you look, everyone with a sole operator puts as much as they can through the business to help them with tax reduction purposes. I totally understand that. And if you legally can, do it, but be aware of the impact of doing it. Don't go and put everything through the business, call every single holiday or work trip just because you're gonna go have a coffee with a potential referrer, for example, every single time, because it could actually hurt you down the track. Now, if you know that you're gonna get financed, please fill in a year or two out and go, okay, well, I'll do it this way for a year or two first before you do it. Because stuff like that's really hard to add. But so director interest for home loans, director like private school fees if that was in there, right? They're easy to pull out and go, listen, they're putting it through the business on a profit and loss. Let's add it back. And the banks generally go, don't do it again, but okay. The things like groceries, flights, and stuff like that, they're not going to pull them out because they don't know what portion of those entertainment expenses are your personal groceries versus actual business expense. So some things 100% can hurt you, Ash. And I've seen it time and time again, people going, but I've got all these properties and all this cash. And I go, that's great. The banks don't care about that. They care about can you service your debt and your profit and loss doesn't look any good. As I said, there are ways we can play around with it, but there is a limit to what we can do.

SPEAKER_01 39:56

But also if you were going to sell your business, like, don't you want your business to show the good true numbers? Like, I don't understand why. Like, I mean, like for me, I'm like, okay, you know, slip in the odd, you know, dinner with friends, maybe, but like that's not a regular thing. That's just the odd one here and there. It's it's yeah, in this is not there's a disclaimer on this, guys. This is not financial advice.

SPEAKER_00 40:20

Or tax advice.

SPEAKER_01 40:22

That's right. It's just between us. But yeah, it's um, I I just think that there it can, yeah. I'm just surprised that more people don't talk about the repercussions of doing it more. Um, and so and so it's good to know. So what what you're basically saying is if you're needing about two years worth of financials potentially for loaning that, and and maybe even if you were due

Getting Sale Ready Before You Need To

SPEAKER_01 40:43

to sell your rent roll, like in reverse, maybe just for the last two years, just tidy things up a little bit. If you've got the intention two years, if that's what you want to do, just be mindful of these things. Because I think it's really good to help people understand what prep work they can do in the lead up so that they don't just one day wake up and go, I want to buy a rent roll. There is a, you know, there's a lead up of how you can make sure you're in the best position. It's also when you sell a portfolio. Like I I've had this discussion with a few people. You actually need to prep selling a rent roll for probably, I mean, I'm I would prep, you know, five years prior, but I think you know, a good two or three years prior of knowing when you want to sell, getting rent ready, there are things that you need to be doing in leader to get the best price, you know?

SPEAKER_00 41:33

Yeah, yeah. I think that's that's a great point. Being sale ready at all times is a great position to be in because if you do find something, you can fix the little bits and pieces. But if it's you know, if there's lots of issues everywhere and you want to sell it now, you're either going to get a lower multiple or spend a lot of money to get it fixed before you can sell, and you may as well accept it a lower multiple anyway by the time you offset that cost. So if you regularly on top of it do spot checks every year with maybe an external party coming, just a spot check to make sure that it's all good, then that's gonna help. But coming back to your point about multiples and selling and your books looking good, when it comes to selling a rent role and a rent role only as an asset, the books of the company don't really come into it because the you're buying the income and your new expense is the PM or whatever it may be. So when you're buying the business, so which is very prevalent in some states, others not so much, but when you're buying the whole business, that's when the profit and loss is your big, is your is your issue because yes, you've got a section 52 on the smaller transactions or your profit and loss for the bigger ones, but how do you go, well, that's groceries, that's this, that's that, and how do you add it back? It becomes very, very messy. So yeah, in a rent pure rent roll transaction sense, that doesn't really come into it, but from a business sale it does.

SPEAKER_01 42:45

Would you still specialise in business broking for people buying a business or purely rent roll?

SPEAKER_00 42:55

Yeah, we have uh the other arm of our business takes absolute care of all that as well. So, like under under this, under this brand, we help real estate agencies with all their needs. So if the real estate principal goes they want to buy a rent roll, great, that's where we specialise. But if they want to go buy that new vehicle or that new fleet or that new investment property or the commercial property to to lease out for their business through their super, whatever it may be, we can still do that, absolutely. And then our other sister brand, CETA finance, takes care of kind of non-real estate stuff. Um but yeah, we can service all. Yeah.

SPEAKER_01 43:26

Yeah. Oh, that that's so good. And again, the fact that you understand real estate so well makes I can imagine it would make it a lot more seamless for a business a real estate business owner to get all their finance through you. So I would hope I know I'm sure absolutely. And and I mean, over here, like I'm in WA, so I know we're a bit further away, but you can help all over Australia. You're not restricted, are you?

SPEAKER_00 43:51

Correct. Correct. There's only one state in the in the country I don't have a client in at the moment, it's Tasmania. So if someone in Taz is watching, come hit me up and we can do the bingo card. So, but no, we we help all across across the country. And look, there are five or six of us in the in the country that specialize in rent and roll finance. We're all pretty we're talking quite regularly, so we're on top of what's going on in the trends and whatnot. If I couldn't do a deal because of overwhelm or something, I've got someone to pass it on to as well. So yeah, we we talk quite regularly and we can service across the country.

SPEAKER_01 44:19

Amazing. So good. Well, I appreciate your time. You're a great connection to have. So anyone that's not connected with Travis, oh sorry, I was gonna say Trav Bells, but then meant to say your whole name,

How To Reach Travis

SPEAKER_01 44:29

Travis Whelan, then then go off. But I have to warn warn people that there are two Travis Wheelans. There is Travis Wheeland, Ren Roll, and there is Travis Realand, who's a BDM who's also quite well known. And so if you look at the other Travis Wheelan and go, it doesn't look the same, it's because there's two.

SPEAKER_00 44:47

So yeah, the other Travis. And you're both quite popular, so you just look completely different.

SPEAKER_01 44:53

But I know that when I first went to go connect with you, I'm like, this guy has a really old photo on his and he needs to, you know, he needs to this like 20 years. Because I think Travis, the other Travis is a bit, I'm assuming he's a bit young, but it I probably agree with what I've got on the meeting.

SPEAKER_00 45:11

Yes, I the other Travis are a really good guy. It's funny how we accidentally kind of ran over each other in on LinkedIn one day, and we thought it was hilarious because we connected when I was back at Westpac, and then nothing happened for a few years. And about, I don't know, two years ago, I said to him on Blink, why don't we catch up for a coffee and you show me your business? Because he's a big hardcourse franchise in in Victoria. So we did, and we got chatting, and he showed me around a business, and then he introduced me to another good friend of yours, Rachel Atkin, and that's how we connected. So yeah, Travis is a great guy all the time for him.

SPEAKER_01 45:39

Yeah, absolutely, sure is. Um, best way for people to get in touch with you, what's your favorite platform or easiest way?

SPEAKER_00 45:46

Oh, look, I think for me, the easiest way is via email or via the phone. So it's just simply Travis at therentrollfinancebroker.com.au is probably the best way. Or I'm sure the details will be linked somewhere, so I won't give you all the numbers here. But you can always hit it up on Instagram uh or Facebook, the Rentroll Finance Broker, as well. Just try to keep it really simple. Just type that in, you'll find me pretty quickly.

SPEAKER_01 46:07

Very obvious. And I'm just thinking, and if you accidentally message the other Travis, so he'll probably then put them in touch with you anyway, so it works in any either way.

SPEAKER_00 46:15

It's definitely happened a few times.

unknown 46:18

So funny.

SPEAKER_01 46:19

Um I appreciate your time. So good to catch up, and I'll see you when I come over next.

SPEAKER_00 46:24

Sounds good. Thanks, Ash.