We are starting to focus on a different market segment and looking at acquiring existing PM companies or parts of a PM's portfolio that is in an area we would like to manage.
Has anyone had any experience in doing this? We are focusing in the Minnesota, Minneapolis market and mainly interested in single family, duplex, triplex and smaller apartment community portfolios or PM at the moment.
How are these deals structured?
Time frame and onboarding?
anything else we should know??
@Michael Tempel a property management company is a service business. The value of the business hinges largely on the owner's level of commitment to the business and the level of service he/she provides. It's very difficult to put a value on a service business since there is the possibility that once the owner is gone the level of service could decline. Maybe the customers are only in business with this management company because of the reputation of the owner. Also, banks won't typically finance the purchase of a service business since there are little to no tangible assets to secure the financing unless you are purchasing real estate as part of the deal such as a building used as office space/warehouse etc...
Honestly you are probably better off finding companies that are in your target market, find out the properties that they manage and approach the property owners about bidding on the management contract and over time build up your own business. You could value the management company on the value of its contracts but typically management deals are done on an annual basis or more times than not they are sort of open ended like a month to month lease. You could very well buy a management company and take over their contracts and a year into it you could lose every contract. What stops the person who sold you the management company from going out and starting another company and taking back all of their contracts. They set up a corporation, bring on a straw partner and you are out the money you gave him and out the contracts that you just lost to him.
Just some things to think about...
I agree with your concerns, but I recently watched a company grow by 2000 units by systematically aquiring smaller PM companies within one year (2 years ago). The devil is in the details of course and very good contracts and purchasing structure is needed.
So far they have successfully gained those units and momentum without losing contracts etc. to find this number of units organically on their own would take many many years and resources through traditional avenues. So I see it as a great growth strategy when implemented correctly.
I am looking to hear from others that have actually done this if possible to help navigate those issues and gain a little more insight into the process.
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