Cost to Purchase an Existing Property Management Company?

Question

Next week I will be meeting with the owner of a property management company in my area.  I've been trying to find compatibles to value the company, but I am falling a bit short.  I've talk to another property manager who purchased their company for 1X annual gross revenue.  I've looked online and have seen others that have gone for less than 1x.  I haven't met with the owner yet to find out the specific details.  I know I need to find out what type of contracts he has set up with the current customers.  I was looking for some insight on what else I need to get for information, how to value it, and what is a good defined multiple for gross revenue in todays market.

Kim Meredith Hampton · Answer

Derek R.

First make sure that you have a Real Estate Brokers License, if needed in your area

2nd, look at the contracts and see who owns the properties, and does one person own a majority of the houses.

Are the contracts assignable?

Look at if there are any ancillary income from the contracts; late fees, leasing fees, renewal fees, nsf fees, maintenance markup? these are just a few.

Do they have all of the security deposits

Look at least 2-3 years of P & L statements

Has this owner that is retiring been involved daily and holding the owners hands, or does he have a staff to handle day to day?

If fees are too low, I would suggest keeping them the same for at least one to two years, then slowly incorporate increases.

If you pay cash, make sure that you have some sort of clawback ($$) for a certain amount of time if accounts leave in XXXX days.

Will the owner stay a certain amount of time to help in the transition?

There are a  lot of other items, but I hope this helps.

I have seen accounts cost $1500 to $4000 per, depending on a lot of the above items and then some....

You could also use the 2.5 of the gross. Make sure to back out any of the owner contributions or any other thing that he compensates himself to come up with a good number. (cell phone, health car, car etc...)

Jason Hirko · Answer

Derek R. 1X gross income or 4X net income is a fairly standard starting point. The most important thing in my mind is how involved is the owner. If he is very involved, you should look at it as buying a book of business and name recognition, as you should not expect the inner workings of the company to stay the same once he's gone.

Dawn Brenengen · Answer

Derek R.  I've gotten casual offers for my business right around 1x annual gross revenue.  Some people have offered that minus the cost of an employee.  It's not for sale, so these are the offers people are bringing me without me trying very hard.

Luke H. · Answer

Neat situation: I think every industry is different, but doing some online research might help.  I'd be interested to know the profit margin and amount of work you have to put in. The debt they are carrying and why they want to sale.

Steve Rozenberg · Answer

Just curious what the final outcome is of this?

Account Closed · Answer

Thank you all for the comments.  Before my initial meeting I know this is a smaller 1-2 person operation.  I have a few buildings myself and use buildium to manage.  This business would lean more towards the book of business than a larger company with established systems as I would look to transition them into my systems.

Peter Tverdov · Answer

I would also agree with 1x gross income

Russell Brazil · Answer

If you want to purchase a business and dont know how to value that business, you might want to enlist the services of a business broker.

Cost to Purchase an Existing Property Management Company?

Most Popular Reply